on copper - KAZ Minerals

Transcription

Focused
on copper
Kazakhmys PLC Annual Report and Accounts 2013
Focused
on copper
Kazakhmys is a leading natural resources
group focused on the production of copper.
Based primarily in Kazakhstan, we currently
operate 16 mines along with our own
concentrators, smelter and refinery.
Kazakhmys is one of the few integrated
copper mining companies, able to process
from ore to finished metal, and backed
by our own power facilities.
In 2013, we delivered significant change with
the disposal of our non-core assets. In 2014,
we are considering further transformation.
We are growing our business with major
mine developments, the largest mining
programme in Central Asia. These projects
will deliver our strategic target of output
dominated by safe, large scale, low cost,
open pit mines.
Our Annual Report and Accounts is available in print and online. Further information
about Kazakhmys is also available on our website www.kazakhmys.com
Cover photo: Site inspection at Aktogay.
Contents
Governance Report
The Governance Report
provides a detailed discussion
of our governance framework
and remuneration policy.
Financial Statements
This section of the report
contains our financial statements
and notes, and includes
production and sales figures,
and mining ore reserves and
mineral resources.
Operating Review
Financial Review
Principal Risks
Corporate Responsibility
30
38
48
53
Governance Framework
Remuneration Report
Other Statutory Information
60
76
89
Independent Auditor’s Report
94
Consolidated Income Statement
98
Consolidated Statement of Comprehensive Income 99
Consolidated Balance Sheet
100
Consolidated Statement of Cash Flows
101
Consolidated Statement of Changes in Equity
102
Notes to the Consolidated Financial Statements 103
The Directors’ Report
includes detailed information
on our operations, financial
performance, principal risks
and corporate responsibility.
2
4
6
8
10
12
14
16
18
20
22
24
26
Governance Report
Directors’ Report
Business Update
Our Business Model
Chairman’s Statement
Chief Executive’s Review
Our Strategy
Key Performance Indicators
Market Overview
Financial and Operating Overview
Risk Management Overview
Corporate Responsibility Overview
Corporate Governance Overview
Board of Directors
Annual Statement on Remuneration
Directors’ Report
The Strategic Report provides
an overview of our Company,
with a focus on the strategic
direction of the business,
performance and progress.
It includes an overview of our
approach to risk management,
corporate responsibility,
corporate governance
and remuneration.
Strategic Report
Strategic Report
Supplementary Information
Consolidated Five Year Summary
Production and Sales Figures
Mining Ore Reserves and Mineral Resources
Shareholder Information
Glossary
www.kazakhmys.com
161
162
168
173
175
1
Strategic Report
Business Update
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Bozshakol project
• Delivered mills and drive systems to site
• Remains on schedule for first
production in 2015
Bozshakol, in northern Kazakhstan, is one of the world’s
largest undeveloped copper deposits.
The transactions include disposals of MKM, a German copper
fabricator, our 26% holding in ENRC PLC and our 50%
holding in Ekibastuz GRES-1, the largest power station in
Kazakhstan. Completing these transactions will realise over
$2 billion and bring significant benefit to our balance sheet.
In 2013, the structural steel frames of the main buildings
at the site were complete and enclosed for the winter
season enabling work to continue. The mills were
delivered to the site and we commenced preparing
for installation.
Optimisation of core copper business
We are focusing on the construction of the main
processing facilities: constructing workshops and the
facilities of the concentrator. We are also completing
the infrastructure.
Rising industry costs and declining metals prices have put
pressure on profit margins in the mining industry. A key
target for Kazakhmys is to achieve sustainable positive
cash flow from our existing operations.
In 2013, the Mining Division achieved annualised cost savings
of $120 million and reduced sustaining capital expenditure
by $181 million. Continued improvements will be sought
in 2014 to improve cash profitability.
Restructuring
We are considering a major restructuring which should
significantly enhance the profile of our business.
Major growth projects
In 2012, we commenced development on-site at our
Bozshakol project and in 2013 at Aktogay. These are
both substantial, long-life, open pit mines, with a highly
competitive operating cost, backed by long-term finance.
In 2014, we approved the potential acquisition of a third
major project, which will provide additional future growth.
In 2013, we appointed a second contractor which
increased the cost but will provide additional resource
to ensure a timely start-up. We remain on track for
first production in 2015.
The project has a capital cost of around $2.2 billion,
and is being largely funded from a $2.7 billion financing
facility provided by the China Development Bank and
Samruk-Kazyna.
Bozshakol will have a production life of over 40 years,
with an average output of 100 kt copper in concentrate
per annum for the first 10 years. The ore also contains
valuable gold by-product which will result in a highly
competitive operating cost.
of 0.35%
MT
copper grade
NR]
contained gold
Targeted ore output from open pits
80%
25%
2013
2
2018
Kazakhmys Annual Report and Accounts 2013
For more information see pages
08 Chief Executive’s Review
10 Our Strategy
Koksay project
Restructuring
• Initial construction works
commenced
• Scheduled for first production
from oxide in 2015 and
sulphide in 2017
• Potential third major
growth project
• Attractive future return
• Potential restructuring
of the Group
• Kazakhmys PLC to retain
East Region, Bozymchak and
major growth projects
Aktogay is a large open-cast mine in
southeastern Kazakhstan, approximately
250 km from the Kazakhstan-China
border. The ore body has significant
similarities to Bozshakol.
In early 2014, we approved the potential
purchase of a third major growth project,
which will provide expansion beyond
Bozshakol and Aktogay. The project is
consistent with our strategy of future
production from a small group of large
scale, low cost, open pit mines, focused
on copper and within Central Asia,
particularly Kazakhstan.
Following introduction of the
optimisation programme and asset
review, the Board is considering a
restructuring, disposing of mature assets,
primarily in the Zhezkazgan and Central
Regions. These assets may have a greater
prospect of successful optimisation and
further investment outside the
Group’s ownership.
Koksay is in southeastern Kazakhstan
and close to the Chinese border and, as
with the other projects, is well located
for existing infrastructure. It has a total
resource of around 3,440 kt of copper,
at an average grade of 0.48%. The
deposit also contains silver and gold.
A restructuring of this nature would
allow the Group to focus on the mines
in the East Region, Bozymchak and the
major growth projects. This is consistent
with the Group’s stated intention of
achieving sustainable positive cash flow
from existing operations and for future
production to come from a smaller
group of predominantly large scale,
low cost, open pit mines.
The Aktogay ore body consists of an
oxide deposit on top of a larger sulphide
deposit, the latter containing some
valuable molybdenum which will be
extracted as a by-product.
We started construction in early 2013
with site preparation and foundation
works in process. We are preparing
the territory for the main processing
facilities: removing top soil, delivering
equipment and machines. We have set
up the temporary camp and offices and
are preparing the ground for the
permanent camp.
The project is primarily being funded
from a $1.5 billion financing facility from
the China Development Bank.
The project will be purchased for
an initial payment of $195 million, with
a deferred payment of $65 million. In
2014, we will spend around $10 million,
principally on additional drilling. The
acquisition should complete by June 2014.
Strategic Report
Aktogay project
Further updates will be provided
during 2014.
of MT
0.33% copper grade sulphide deposit
of 0.37%
copper
MT
grade oxide deposit
www.kazakhmys.com
3
Strategic Report
Our Business Model
Our operations
and markets
Our mining and processing operations are backed by our own coal
mines and power stations along with auxiliary and transportation
departments. Being integrated ensures security of supply for several
key inputs and allows us to exercise control over every stage of the
production process. In addition to copper, our ore contains other
valuable metals, such as zinc, silver and gold.
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2013 global refined copper consumption
We listed in London in October 2005 and our shares can be
traded in London, Hong Kong and Kazakhstan. We have delivered
significant change over the past 12 months, disposing of assets
and focusing on our core mining business.
Kazakhmys is one of the few integrated copper producers
in the world, able to process from ore to finished metal.
16%
44%
Europe
China
United States of America
Rest of the World
31%
Source: Wood Mackenzie Long Term Outlook
December 2013
9%
Our business model
1
2
Captive power
Mining
Processing
We own and operate two coal mines
which supply our three captive power
stations with coal. In 2013, 7% of our coal
output was sold to external customers
and the rest used internally. The captive
power stations generated 5,723 GWh
of which 59% was used internally.
At the heart of our business are
16 mines, from which we produce our
copper and by-products. The current
mines are predominantly underground,
and use a variety of mining methods.
We have several programmes to improve
the efficiency of our mines and to offset
the trend of rising costs which occurs
throughout the industry. These
programmes are accompanied by
spending and training on health and
safety, to reduce the risk to our
workforce in a hazardous working
environment. In 2013, our mines
produced 39 MT of ore with an average
copper grade of 0.99%. The delivery of
our major growth projects from 2015
will help transform our business, and
production will increasingly come from
new, low cost, open pit mines.
Kazakhmys owns two smelting and
refining complexes, one of which is
currently suspended. At the copper
smelters, the concentrate is heated to
release molten metal which is poured
and cast into sheets known as anodes.
The anodes are then refined to make
finished copper cathodes, sheets of
copper weighing up to 60 kg each.
In 2014, around 60% of our output
will be sold as cathode, with the balance
sold as concentrate. Substantial funds
are continually invested to reduce the
environmental impact of the smelting
and refining plants.
MT
coal mined
MT
ore mined
4
3
kt
production of own copper
cathode equivalent
10 Our Strategy
30 Operating Review
Our mining operations are divided into three regions. We
employ around 56,000 people and our revenue represents
around 2% of Kazakhstan’s GDP. Kazakhstan is the ninth largest
country in the world and has enjoyed significant development
over the past 20 years, attracting substantial investment towards
its oil and resource industries.
Kazakhstan is ideally located to serve the major copper markets.
Our production is increasingly sold to China, the largest copper
market in the world. Material is sold as either cathode or
concentrate. Kazakhstan has direct rail links to China with
typical rail journeys of just days.
Copper is the principal metal used to conduct electricity and,
along with electrical grids and circuits, copper is intensively
used in a wide range of applications from cars to domestic
appliances. Demand continues to increase with economic
growth and global supply of copper is constrained by
declining grades at existing mines.
Strategic Report
Our location gives us several advantages – access to the excellent
natural resources of Kazakhstan, reliable logistics and utilities, an
experienced workforce and close connections to key end markets.
Global copper usage
8%
Construction
Electrical and electronic products
Industrial machinery
30%
14%
13%
Transport
Consumer products
35%
December 2013
Changing the face of our business
In 2014, we will be reviewing the possibility of separating the
Group’s assets and retaining East Region and the major growth
projects. This could result in a smaller, highly cash generative
business with significant growth potential.
East Region and the
major growth projects
Copper and other metals
Growth projects
Bozshakol
B
Artemyevsky
Molodezhny
Nurkazgan
YubileynoSnegirikhinsky
Orlovsky
Kusheki
Kazakhstan
Irtyshsky
Abyz
Akbastau
North
ktoga
Aktogay
East
West
Stepnoy
Konyrat
South
Sayak
Koksay
Zhomart
Shatyrkul
Bozymchak
Zhezkazgan Region
and Central Region
Copper and other metals
Coal mines
Power
www.kazakhmys.com
5
Strategic Report
Chairman’s Statement
'HOLYHULQJ
transformation
the Government of Kazakhstan and the three founder shareholders
of ENRC, with the intention of buying the outstanding shares of
ENRC and taking the company private. The consortium offered
ENRC shareholders a mixture of cash and Kazakhmys shares,
the latter coming from the Government’s holding in Kazakhmys.
The Board of Kazakhmys was concerned about corporate
governance and the financial outlook for ENRC. With the Board’s
recommendation, and following the approval of independent
Kazakhmys shareholders, we accepted the offer for our 26%
holding in ENRC. In exchange for our holding we received
$875 million in net cash proceeds and 77 million Kazakhmys
shares, which have been cancelled.
Simon Heale, Chairman
In March 2012, my predecessor Vladimir Kim described the
development of a new Kazakhmys focused on copper production
from a core of large-scale open pit mines. The new Kazakhmys
will provide both a safer operating environment for our workforce
and improved financial returns to our shareholders.
During 2013, we carried out some significant actions which help
take us towards this vision with the disposal of non-core assets
and the continued development of our major growth projects.
However, there is still work to do and 2014 will be a critical year
in this transformation.
In 2013, we were met by lower metals prices and rising costs.
Management successfully took action to reduce costs which is
reflected in the financial results, but these conditions highlighted
the challenges at our current operations. Alongside our optimisation
programme, we initiated an asset review in order to improve the
profitability of our existing copper assets and it became clear that
more significant and structural change is required.
Health and safety remains a key focus for the Board. I am
disappointed to report that there were 18 fatalities in 2013.
Improvements continue to be made and the positive impact of
several measures introduced in the prior year has proved sustainable
through 2013, but we remain a long way from our target of zero
fatalities. All fatalities are unacceptable and avoidable and the Board
will continue to demand significant improvement in health and safety.
Over the past 12 months we sold our three non-core businesses.
Completing these transactions will realise a total of $2,179 million
in cash and will significantly benefit our balance sheet.
The first disposal was MKM, a downstream copper business based
in Germany. MKM was a profitable business, but did not fit with
our focus on mining in Central Asia. The disposal was completed
in May 2013 for €42 million in consideration, including €12 million
on a deferred basis. We also received a dividend of €10 million
from MKM during the year.
Kazakhmys was the largest single shareholder in ENRC, with
a holding of 26%. ENRC, which is principally involved in mining
bulk metals in Kazakhstan, had seen its share price weakened by a
number of factors and in April 2013 a consortium was formed by
6
The performance of our investment in ENRC was disappointing,
but this transaction was considered the best available option to
realise the value of such a large and illiquid stake. The cancellation
of the Kazakhmys shares received, representing 14% of our shares
in issue at that time, has significantly changed the share register and
Kazakhmys now has a majority free float of 57%. We are the first of
the newly listed resource companies on the London Stock Exchange
to have reached a majority free float. The reduction of the shares
in issue will enhance future returns to shareholders.
In early 2013, we announced that we were looking at the potential
disposal of our 50% holding in Kazakhstan’s largest power station,
Ekibastuz GRES-1. The disposal of Ekibastuz GRES-1 was approved
by shareholders shortly after the year end and will result in net
proceeds of $1.25 billion, compared to an effective purchase
price for the assets sold of $580 million.
The refurbishment of Ekibastuz GRES-1 was progressing well, but
the sale was considered to be in the best interest of shareholders.
With the profits from Ekibastuz GRES-1 being reinvested back into
its refurbishment, dividends to Kazakhmys were deemed unlikely
in the medium term and there was uncertainty over the tariff
regime beyond 2015.
These three disposals allow management to focus solely on our
core copper business, increase the efficiency of our existing assets
and deliver our growth projects.
Over the past few years, a combination of declining grades, cost
inflation and lower commodity prices has put significant pressure
on our profitability and cash generation. In response to the pressure
on margins and the future spend on the Group’s major growth
projects, we commenced an optimisation programme and asset
review, including a re-assessment of the Group’s integrated model.
The objective was to achieve sustainable positive cash flow from
our existing operations focusing on profitable production rather
than volume targets.
Actions to improve efficiencies in the second half of 2013
resulted in annualised net cost savings of approximately $120 million.
There were also reductions in sustaining capital expenditure and
these measures will be continued and extended in 2014.
The Board believes that a number of mature assets, primarily in
the Zhezkazgan and Central Regions, will struggle to meet their
own ongoing investment needs and contribute to overall cash flow.
The prospect of successfully optimising and investing in these assets
may be limited whilst they remain under the Group’s ownership,
and they do not fit within the Group’s strategy of production
dominated by large-scale open pit mines.
22 Corporate Governance Overview
60 Governance Framework
A restructuring of this nature would base the Group on the
existing assets in the East Region, along with Bozymchak and the
major growth projects. The East Region contains four higher grade
mines which combine well with the development period of the
major projects.
Further statements on the progress of the proposal will
be made as and when appropriate.
The delivery of our two current major growth projects at
Bozshakol and Aktogay is central to the Group’s transformation
and we have implemented some significant changes at the projects
during the year.
Most of the critical development targets at Bozshakol have
been met to date, but there were concerns over the principal
contractor’s ability to maintain satisfactory progress.
In December 2013, we appointed Non Ferrous China as a
second contractor at Bozshakol. The appointment of Non Ferrous
China gives the Board greater confidence that the timetable will be
maintained and that the project will commence as planned in 2015.
There is additional cost of $350 million arising from the change, but
this should secure the start-up date, and hence the timing of cash
flow generation from the project, thereby avoiding the greater loss
of value which would have resulted from a delay.
At Aktogay we are replacing the previous single principal contract
with several smaller contracts. There will be a change to the overall
project cost, which will only be finalised once all the tenders are
complete. We have maintained a start date of 2015 for commencing
extraction from the oxide section, but are moving first production
from the sulphide section to 2017, spreading the expenditure
on the projects.
During 2013, a major copper project, Koksay, became available
in Kazakhstan. Koksay is consistent with our strategy of future
production from a small group of large scale, low cost, open pit
mines, is in our key operating area and should provide attractive
long-term returns. The Board has accordingly approved the potential
purchase of this project for $260 million, of which $65 million will be
deferred. Significant development expenditure will not be incurred
until after Bozshakol has commenced production. The transaction
is intended to be completed shortly.
The disposal of the non-core assets will reduce strain on the
balance sheet. At the year end, there was net debt of $771 million,
equivalent to net funds of $478 million following the receipt of the
Ekibastuz sale proceeds on a pro forma basis. However, holding
three major projects with their associated capital spend creates
specific risks and the Board is considering partnering options on
the major growth projects in order to share some of the risk
and reduce the capital requirements.
The performance of our share price in 2013 has been disappointing.
The mining sector as a whole has been out of favour, with investors
seeking companies that have high levels of cash generation and
capacity for dividends, which has encouraged the cancellation of
projects and the reduction of capital expenditure across the industry.
In addition to the general sector trend, Kazakhmys shares have
been impacted by our reduced profit margin, concerns about the
profitability of some of our assets and the performance of our
holding in ENRC.
The Board believes that the long-term success of Kazakhmys is
dependent on improving the cash generation of the underlying
business and delivering the major growth projects. This will
provide the best return for shareholders and greater stability for
all stakeholders. The share price will always be impacted by the
performance of metals prices, over which we have no control,
but the substantial changes we are undertaking should create
significant shareholder value.
Our dividend policy, as set out at Listing, is for the Board to consider
the cash generation and financing requirements of the business and
then recommend a suitable dividend. This policy maintains flexibility
on dividend payments, which is appropriate given the underlying
cyclicality of a commodity business. Given the current low level of
cash generation from our existing assets, the ongoing asset review
and the expenditure on our growth projects, the Board does not
recommend a dividend at this time.
Since Listing, Kazakhmys has returned a total of $2,095 million to
shareholders, in ordinary and special dividends and share buy-backs.
Such a level of return compares favourably within the sector.
When the outcome and delivery of the restructuring is clearer,
and as Bozshakol moves into commissioning, then returning funds
to shareholders will be a key consideration.
In my first year as Chairman I should like to thank my fellow
Directors and senior executives for their support. In particular,
I should like to thank Vladimir Kim for his assistance in the
handover of the Chairman’s role and for his continued support
and commitment to Kazakhmys. My appointment as independent
Chairman ensures that the Group now fully complies with the
requirements of the UK Corporate Governance Code. The Board
has always placed a high emphasis on good governance. Governance
is not a simple task, but a continuous journey and one to which we
remain committed.
It is clear that 2014 will be a demanding but significant year for
Kazakhmys. We firmly believe there is a positive outlook for copper,
a metal which is fundamental to economic development and which
has a constrained supply in the long term. The new Kazakhmys, of
predominantly large scale, low cost, open pit mines in Central Asia,
will be in a strong position to take advantage of these markets
and I look forward to updating shareholders as we progress
through the year.
Simon Heale
Chairman
www.kazakhmys.com
7
Strategic Report
The Group is therefore reviewing the feasibility of separating
these assets into a separate corporate entity with a view to
potential disposal. Vladimir Kim has indicated he will consider
creating a vehicle, owned by him personally, to hold these assets.
His knowledge of the assets, understanding of the operating
environment and standing in Kazakhstan makes this the most
feasible route to exit from these operations. Discussions on such a
transaction are at a preliminary stage. Should this disposal proceed,
it would be reviewed by the independent Directors of the Board,
and, as a related party transaction, be subject to the approval of
independent shareholders.
Strategic Report
Chief Executive’s Review
'HOLYHULQJ
improvement
price averaging $7,328 per tonne in 2013, 8% below the 2012
average. Precious metals were considerably weaker, with average
LBMA gold and silver prices declining by 15% and 24%, respectively,
as concerns over global financial instability retreated and lessened
their attractiveness as ‘safe havens’.
Mining revenue declined by 9% to $3,058 million, due to lower
metals prices, partly offset by higher copper sales volumes. Revenue
in 2012 was assisted by additional gold sales which were held over
from 2011.
Cash management was a key focus of attention in 2013, seen in
both operating costs and capital expenditure. Cash operating costs
increased by 7%, and were impacted by higher sales volumes. This
level of increase was an achievement given the higher volumes of
ore mined and processed, the salary increases awarded in mid-2012
and some inflation in input costs. Evidence of the action taken is seen
in the reduction in costs in the second half of the year compared to
the first six months of 2013.
Oleg Novachuk, Chief Executive
This review covers a period of significant change. We delivered
three corporate transactions in 2013, allowing us to focus on our
copper mining business in Kazakhstan. We are likely to see further
transformation in 2014, moving towards our strategic goal of copper
production from a core of large scale, low cost, open pit mines.
Regardless of changes in the business, we remain focused on
improving our health and safety performance. In 2013, there
were 18 fatalities. The progress we are making is slower than we
would like, but encouragingly we are seeing improvements in some
of the identified core risk areas. Fatalities resulting from rock fall
have reduced compared to the previous year and we are seeing
better risk assessments at our underground operations. We will
continue to focus on improving our performance in other hazard
areas, for example in transport safety, working at heights and
when handling heavy machinery.
In 2013, we produced 294 kt of copper cathode equivalent from
own material. Finished copper output was slightly higher than the
previous year and was at the top of the range we set at the start of
2013. We successfully targeted additional copper output, in order
to mitigate costs, and we will maintain this strategy in 2014. This was
the sixth consecutive year in which we met our production targets
and I would like to thank my colleagues for their hard work in
achieving this.
Within our principal by-products, output of zinc and gold both
declined through a combination of lower ore output and grade,
although in both cases the decline was less than anticipated and
production remained ahead of target. Silver output had a strong
year, benefiting from a release of work in progress and higher
recovery rates.
Sales of copper products at 312 kt were 16 kt higher than
production, lifted by a reduction in finished goods and the
processing of work in progress arising from the suspension
of the smelter at Zhezkazgan.
Gross unit cash costs benefited from the additional sales volumes
and declined to 328 US cents per pound. Excluding these additional
volumes, the gross unit cash cost was 334 US cents per pound,
in line with 2012, and below both the initial target for the year of
347 to 360 US cents per pound and the revised mid-year target
of 337 to 347 US cents per pound.
Costs in 2014 will benefit from the devaluation of the tenge on
11 February 2014, although offset by some consequent inflationary
pressure. We will also incur additional taxes on salary costs, and
higher refining charges for the processing of copper concentrate
sold to China. The refining charge is deducted from the sales
price and reduces revenue, but we will include it in our unit cost
calculation in keeping with industry practice. The target range for
costs in 2014 will therefore be 315 to 330 US cents per pound.
The combination of lower revenue and increased costs in 2013 led
to a 39% decline in EBITDA for the Mining Division to $705 million.
Due to lead times, capital investment can be less flexible than
operating expenditure, however, sustaining capital expenditure in
the Mining Division in 2013 was reduced to $422 million, including
some one-off costs, compared to $603 million in 2012. In 2014,
we will maintain control over sustaining capital expenditure with
spend of between $350 and $450 million.
We suspended activity at several mid-sized projects, with
continuing work focused on studies to lengthen the life of
Artemyevsky mine. Development capital expenditure will be around
$30 million in 2014. The main emphasis for capital expenditure
will be on the major growth projects, discussed below, at $750 to
$950 million for Bozshakol, $450 to $650 million for Aktogay and
$10 million for Koksay.
Group EBITDA was $1,149 million in 2013. Due to their disposal,
MKM, ENRC and Ekibastuz GRES-1 are only included for part of the
year. Their disposal and related financials are covered extensively
in the Financial Review.
Copper production in 2014 will be in line with the guidance for
2013, or between 285 and 295 kt. Zinc and silver output will decline
to around 120 kt and 11,000 koz, respectively. Gold will increase
to 125 koz, assisted by the commissioning of Bozymchak.
In the circular distributed to shareholders on 12 July 2013,
we stated our intention to manage the Group’s existing core copper
operations to generate sustainable positive cash flow. The actions
we have taken to reduce costs and sustaining capital expenditure
are positive, but as set out in the Chairman’s Statement it has
become apparent that more significant changes are required.
Metals prices remained under pressure in the soft economic climate.
Copper continued to perform relatively well, with the LME cash
The restructuring being reviewed will result in the operations
of the Group consisting of the four mines in the East Region,
8
10 Our Strategy
30 Operating Review
Strategic Report
along with the three associated concentrator facilities, Bozymchak
mine in Kyrgyzstan, and the major growth projects. East Region
accounts for around 28% of our copper in concentrate output,
41% of gold, 36% of silver output and all of our zinc in concentrate.
It includes around 12% of the Mining Division workforce and 11%
of total ore output, with an average copper grade of 2.41%.
Although modest in output, the cash generation of the East Region
assets will put the Group in a strong position to move through the
development phase of the major growth projects.
It is being considered that the mines in Zhezkazgan and Central
Regions, along with captive power, smelting and refining, will become
part of a separate corporate entity. With further investment and
potential Government support, the life of these mines could be
extended but this is challenging with the Group’s current funding
capability and the returns are unlikely to be compatible with the
demands of a listed company and external shareholders. We have
recognised an impairment charge of $670 million, largely due to
the challenging economic outlook for certain assets, particularly
in the Zhezkazgan Region.
A restructuring of this nature would be highly complicated,
especially for a Group that has been so fully integrated. The division
and management of central and shared services will require careful
planning in order not to disrupt production and to ensure a stable
base for both entities in the future.
In 2013, with the suspension of our smelter in Zhezkazgan we
recommenced the sale of copper in concentrate and increased
the proportion of our sales to China. In 2014, around 40% of
our copper sales will be in the form of concentrate. Copper in
concentrate is sold at a lower price to cathode, reflecting the cost
of smelting and refining to the customer, but this reduction is offset
by removing the operating costs and sustaining capital expenditure
of the smelter complex.
The completion of our major growth projects is central to the
success of Kazakhmys, providing long-term supply from large scale,
low cost, open pit mines. At Bozshakol, several key milestones were
met in 2013, with the delivery of the main milling equipment, the
enclosure of the main processing building ahead of the winter
period and some major support infrastructure and earthworks.
As previously mentioned, we appointed a second contractor at
Bozshakol, which led to an increase in the overall budgeted cost for
the project of around $350 million, however the appointment of the
additional contractor will provide greater assurance that the project
remains on track for first production in 2015.
Aktogay has been covered in the Chairman’s Statement,
however, in 2014 we will continue with the infrastructure
activities, bulk earthworks and preparations for buildings.
The Chairman’s Statement mentions the proposed acquisition of
Koksay, a third major project, which will come into development
after the existing two projects have been commissioned. Koksay is
in southeastern Kazakhstan, close to the Chinese border and is well
located for existing infrastructure. It has a total resource of around
3,440 kt of copper, at an average grade of 0.48% and the deposit
also contains silver and gold. In 2014, expenditure will be restricted
to around $10 million, principally on additional drilling. No significant
expenditure will be incurred until the major projects are producing.
At 31 December 2013, the Group had net debt of $771 million.
This is before the receipt of $1.25 billion for Ekibastuz GRES-1.
Spending on the growth projects in 2013 was lighter than
anticipated, although this expenditure will transfer into 2014
and 2015. In 2014, we anticipate total capital spend of up to
$2 billion, of which up to $1.6 billion is for the major projects.
The management of cash will continue to be a key focus for
management. Our growth projects are securely funded from our
two long-term debt facilities. The disposal of our non-core assets
will greatly strengthen the balance sheet. The funds held will reduce
the future borrowing requirements of the Group and could be
used to repay existing facilities if so required.
Market analysts have concerns about excess supply of copper
from 2013 to 2015, as several large projects enter commissioning.
Experience shows, however, that global supply growth is generally
lower than anticipated and output from historic assets will continue
to decline. Demand for copper should benefit from a recovery in
global growth and long-term prospects for copper are excellent.
With the disposal of the non-core assets, the improved management
of costs and the emphasis on additional production, we have moved
the Group a considerable way forward. We will now continue to
consider our proposed restructuring, at the end of which Kazakhmys
could be a remarkably different group, centred around three major
growth projects and a core of cash generative producing assets.
The outlook for copper remains positive and, as a simplified group
focused on copper, I believe we can approach the future with
increasing confidence.
Oleg Novachuk
Chief Executive
www.kazakhmys.com
9
Strategic Report
Our Strategy
Optimisation
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Supporting our strategy
Behind our strategy is a balanced recognition of all
key stakeholders. Our business should benefit our
shareholders and enhance the social and economic
development of the communities where we operate.
Kazakhmys employs around 56,000 workers with
substantial social investment, reflecting the close
and historic links with the communities serving
our operations.
20 Corporate Responsibility Overview
53 Corporate Responsibility
Risk Management
The Group has a structured approach to managing risk.
Those significant risks that could materially affect the
Group’s financial condition, performance, strategy and
prospects are set out within this report along with a
discussion of our approach to risk.
18 Risk Management Overview
48 Principal Risks
The Board has established eight Key Performance
Indicators which have been chosen for their relevance
to our Group strategy and key risks. A further six Key
Performance Indicators have been chosen for
corporate responsibility.
12 Key Performance Indicators
10
Our vision
To develop ourselves as a leading
natural resources company in
Central Asia, combining international
standards with the exceptional mineral
opportunities available in the region.
Our objective
To deliver value for our shareholders
with a strong commitment to the safety
of our employees, the environment and
the communities around us.
Relevant KPIs
• Free Cash Flow
• Earnings per share based on Underlying Profit
• Fatalities and LTIFR
Strategic Report
Our strategic priorities
1
Deliver growth projects
We will aim to replace existing
reserves and deliver growth in output
by investing in projects that add value
to our portfolio.
Relevant KPIs
• Project status
Relevant risks
• Health and safety
• New projects
• Labour, mining equipment
and supplies
• Liquidity
Progress
• Major milling equipment was
delivered to Bozshakol and
installation commenced
• Major processing building at
Bozshakol enclosed ahead of
the winter season
• Commenced recruitment of
operational workforce for Bozshakol
• Appointed second contractor
at Bozshakol. Secures timeline but
increases capital cost
• Approved potential purchase of
third major project site, for
future development
• Suspended mid-sized project
development as part of optimisation
programme and asset review
2014 Priorities
• Continue development at Bozshakol
and Aktogay
• Commissioning of Bozymchak
Optimise existing assets
Rising costs create significant challenges
for our business. We are developing
management tools to improve the
performance of our existing assets and
create opportunities to raise efficiency in
our operations. We are also considering
more significant changes to our
operating structure.
Relevant KPIs
• Ore output
• Cash costs of copper after
by-product credits
• Copper cathode equivalent
production from own material
• Maintenance spend per tonne
of copper cathode
Relevant risks
• Health and safety
• Labour, mining equipment
and supplies
• Commodity prices
• Reserves and resources
• Change management
• Labour and community relations
Take advantage of natural
resource opportunities
We may seek out and acquire attractive,
undeveloped natural resource assets
principally in the Central Asian region.
Relevant risks
• Acquisitions and divestments
• Liquidity
Progress
• Disposal of non-core assets in 2013
to focus on copper operations
• Approved potential purchase of
third growth project
2014 Priorities
• Existing assets and growth projects
will take precedence
• Consider partnership at major
growth projects
Progress
• Optimisation programme and
asset review
• Significant improvement in cost
management, ahead of annual target
• Reduced sustaining capital
expenditure in copper businesss
by $181 million
2014 Priorities
• Continue to focus on improved
d
cash generation with tight control
rol
of operating costs and
sustaining capital expenditure
• Further review of potential
restructuring
For the latest news, video case studies and progress
of reports on our major growth projects visit:
www.kazakhmys.com/en/operations/growth_projects
www.kazakhmys.com
11
Strategic Report
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Objectives
Strategic priorities:
Deliver value for our shareholders
Deliver growth projects
Group EBITDA (excluding
special items) ($ million)
Free Cash Flow
($ million)
Earnings per share based
on Underlying Profit ($)
1,149
(171)
0.37
13
13 (171)
1,149
12
1,912
11
2,925
10
2,835
09
1,634
12
11
824
10
09
13
12
13
12
13 0.37
12 85
718
579
0.94
11
2.80
10
2.79
09
Project status
1.13
3
3
Development
2
2
Feasibility
13
12
3
3
13
12
3
Pre-feasibility
4
Scoping
Relevance
Relevance
Relevance
Relevance
This is a measure of the underlying
profitability of the Group, widely
used in the mining sector.
Monitors Group cash flows used
to fund returns to shareholders
and invest in the future growth and
development of the business. It is
an indicator of the ability to grow
the business through reinvestment,
reduce debt or to make returns
to shareholders.
Shows how much net profit we
have generated and measures the
return to our equity shareholders.
EPS based on Underlying Profit
can be used as an indication of
profits available to shareholders
for distribution or retention in
the business.
A key aim of the Group’s strategy
is to deliver our growth projects
and take advantage of opportunities
in natural resources. Project status
indicates the number of growth
projects active within the Group
and their stage of development.
How we measure
How we measure
Net cash flow from operating
activities less sustaining capital
expenditure on tangible and
intangible assets.
Profit before special items and
other non-recurring or variable
non-trading items, and their
resulting taxation, divided by
the weighted average number
of ordinary shares in issue
during the year.
The number of major or midsized projects in the key stages
of scoping, pre-feasibility,
feasibility and development.
How we measure
EBITDA is earnings before interest,
taxation, the non-cash component
of the disability benefits obligation,
depreciation, depletion, amortisation,
and mineral extraction tax as adjusted
for special items and including the
share of EBITDA of the joint
venture and the associate. From
2012, EBITDA (excluding special
items) has been redefined to exclude
the non-cash component of the
Group’s disability benefits obligation.
Please refer to the EBITDA section
of the Financial Review on page 38.
2013 Performance
Group EBITDA decreased by
40% to $1,149 million as revenues
declined due to lower realised
prices for the Mining Division’s key
products. Operating cash costs were
higher due to an increase in ore
volumes and inflationary pressures.
The EBITDA contribution from
ENRC fell by 50% to $276 million,
as the Group’s share of EBITDA
was only for six months compared
to a full year in 2012. The EBITDA
contribution from Ekibastuz GRES-1
declined by 19% as the power
station’s results were also impacted
by a shortened period to 5
December 2013, compared to a full
year in 2012, and lower revenues.
12
2013 Performance
Free Cash Flow decreased by
$256 million to an outflow of
$171 million in 2013, primarily
due to the lower EBITDA from
the Mining Division, higher interest
payments during a phase of
increased debt levels to finance
investment in the major growth
projects and no dividends being
received from ENRC or
Ekibastuz GRES-I.
2013 Performance
EPS decreased by 61% to
$0.37 per share reflecting the
lower profitability of the Mining
Division as well as the higher
relative impact of mineral
extraction tax on the lower profit.
The reduced share of profits for
the six month period from ENRC
also contributed to the fall in EPS.
These factors were partially offset
by a decrease in the weighted
average number of shares in issue
due to the 77 million Kazakhmys
PLC shares received from the
ENRC disposal in November 2013,
which were subsequently cancelled.
How we measure
2013 Performance
The Bozshakol, Aktogay and
Bozymchak projects remain
under development. Bozshakol is
on target to commence copper
concentrate production in 2015,
while the production from the
Aktogay oxide ore is planned
for 2015 and output from the
sulphide ore is scheduled for
2017. Production from Bozymchak
is expected in the first half of
2014. In 2013, the Mining Division
reviewed its mid-sized projects
to scale back capital expenditure
requirements while the major
growth projects are developed.
As a result, the Akbastau
concentrator, South East
Nurkazgan, Anissimov Klyuch,
Zhaisan and Zhomart II projects
have been suspended. Study work
is progressing on the Artemyevsky
mine extension project which is at
the pre-feasibility study stage.
30 Operating Review
38 Financial Review
The KPIs are regularly reviewed to ensure they
remain relevant and will continue to be monitored
in the future.
Strategic Report
The eight KPIs used to monitor the Group’s performance have
been selected as those most aligned to the Group’s strategy and
objectives. A clear link exists between performance against the
Group’s strategy and objectives and the remuneration of the
executive Directors as the annual bonus plan performance
targets are aligned to the Group’s KPIs and strategic priorities.
KPIs specific to corporate responsibility are reported
in the Corporate Responsibility Overview on page 21.
Strategic priorities:
Optimise existing assets
Ore Output
(kt)
39,191
13
39,191
12
37,507
11
Cash costs of copper after
by-product credits (USc/lb)
Copper cathode equivalent
production from own material (kt)
Maintenance spend per tonne
of copper cathode ($/t)
222
294
1,435
13
222
12
33,432
11
10
32,935
10
09
32,409
09
174
114
89
72
13
294
12
292
13
11
299
11
10
303
10
09
320
1,435
12
2,065
1,237
1,075
09 644
Relevance
Relevance
Relevance
Relevance
Ore output indicates our ability
to maximise output from existing
assets and growth projects. This
KPI should be considered alongside
other measurements including
final copper production costs and
maintenance spend, to ensure
extraction is valuable.
Measures the performance of the
Group in maintaining its low-cost
base whilst maximising revenues
through the sale of by-products.
Copper, the Group’s principal
product, represents 74% of the
Group’s revenues and is the main
operational indicator. The price
of copper is set by the market
and is not, therefore, a KPI.
Indicates how much cash flow
is required to maintain current
output and how efficient we are
at controlling capital expenditure.
How we measure
Number of tonnes of ore extracted
from our Mining Division, excluding
output from the Bozymchak mine
and mines in the former Gold
division: Central Mukur and Mizek.
2013 Performance
Ore output was 4% above the
prior year with a full year of
production from the open pit
Konyrat mine and higher
production from the West
Nurkazgan mine. Whilst ore
production volumes rose in 2013,
the focus remained on profitable
production across the Mining
Division’s three regions, in
particular the Zhezkazgan Region,
where ore output from low
grade zones was restricted.
How we measure
The total of cash operating costs
excluding purchased concentrate
less by-product revenues, divided
by the volume of copper cathode
equivalent sales.
2013 Performance
The cash costs of copper sold after
by-product credits rose by 28% to
222 USc/lb, due to the growth in
operating costs with higher ore
extraction volumes, inflation and
the full year effect of salary awards
during 2012. The cash cost metric
was also negatively impacted by
a decrease in by-product credits
mainly due to lower realised prices
for gold and silver along with lower
sales volumes of gold products.
These factors were partially offset
by the 11% increase in copper
cathode equivalent sales volumes
with a release of finished goods in
2013 compared to the build-up
of stock in 2012.
How we measure
produced from own ore either
as refined copper cathodes or
as recoverable copper in
concentrate or residues sold.
2013 Performance
production was at the top end
of the 285 to 295 kt range set at
the start of the year. Copper
cathode equivalent production
from own material of 294 kt was
2 kt above the prior year despite
the 2012 production volumes
benefiting from a large release of
work in progress at the smelters.
The production volumes in 2013
included a 31 kt contribution from
the sale of copper in concentrate
following the suspension of the
Zhezkazgan smelter in the
second half of 2013.
How we measure
Sustaining capital expenditure
for the Mining Division, divided
by copper cathode equivalent
production volumes from our
own material.
2013 Performance
Maintenance spend per tonne
was 31% below the prior year
at $1,435 per tonne, with a
number of measures successfully
introduced as part of the
optimisation programme and
asset review to limit the capital
spend required to sustain the
Group’s operations. Capital
expenditure in 2013 included
$83 million for non-recurring
mine development projects and
concentrator improvements,
several of which were carried
forward from 2012.
www.kazakhmys.com
13
Strategic Report
Market Overview
Market Overview
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The fundamentals for the global refined copper market
remained tight with a small supply surplus of 0.2 MT recorded
in 2013. Estimated global refined copper production of 20.9 MT
was below the level forecast by some analysts due to the limited
availability of copper scrap material. Global refined copper
production was 4% above the prior year, a reflection of the
growth in output from mines, in particular brownfield extensions
and as mining operations suffered less severe outages than in
previous years.
1
Average price movement in 2013
Copper
(8%)
Zinc (2%)
Gold
(15%)
(24%)
Silver
1
During the second half of 2013, the copper price stabilised due
to a combination of positive economic indicators on the health
of the global economy, central banks adopting a cautious approach
to the tightening of monetary policy and stronger than expected
demand from China. Copper inventories at global exchanges fell
during this period and ended the year marginally above the
balances observed at the start of 2013. Overall the LME cash
price for copper averaged $7,328 per tonne in 2013, 8% below
the average for the metal in 2012.
Average price quoted on the LME and LBMA exchange
compared to 2012.
Global refined copper consumption (kt)
Source: Bloomberg
22,778
15
21,755
14
Copper
At the start of 2013, the expectation for the copper market was
for the supply surplus reached in 2012 to expand further as the
growth in output outpaced the growth in demand. Despite this,
the LME copper price started 2013 relatively strongly, averaging
around $7,900 per tonne in the first quarter of the
year, supported by positive sentiment on the outlook for
Chinese demand.
A sustained build-up of copper inventory at global exchanges,
the uncertainty over the speed of tapering of the US Federal
Reserve’s monetary stimulus measures and concerns around
credit availability in China led to the copper price falling sharply
in the second quarter of 2013, reaching a low of $6,638 per
tonne in June 2013.
Copper price and exchange inventories
$/t
kt
9,000
1,500
8,000
1,200
7,000
900
6,000
600
300
5,000
Jan
Apr
Jul
2013 exchange inventories
2012 LME price
Oct
2013 LME price
Source: Bloomberg
14
Dec
20,702
13
19,605
12
19,606
11
19,174
10
Estimate
Actual
Source: Wood Mackenzie Long Term Outlook December 2013
Refined copper consumption is estimated to have grown 6% to
20.7 MT in 2013, assisted by continued strong demand growth
from China. Demand for refined copper in Germany and the
United States also increased, despite a decline in industrial output
in Europe and a lower level of industrial output growth in the
United States in 2013.
Kazakhmys’ largest market for the sale of copper products is China,
the world’s leading consumer of refined copper. In 2013, China
accounted for 44% of global consumption, well ahead of the second
largest consumer country, the United States, at 9%. Chinese copper
consumption has remained strong with a 12% increase in refined
consumption forecast in 2013. Demand from all of the key end use
sectors in China such as electrical infrastructure, construction and
consumer durables, increased during the year.
In 2014, the supply of copper from mines is predicted to
increase by 11% with growth from greenfield and brownfield
expansion projects in Central Africa and Asia along with the ramp
up of mine expansions at existing operations in Chile. Chinese
refined copper consumption is expected to grow by a further
7%, supporting global demand for copper in 2014. Overall,
a supply surplus of around 0.4 MT in the global refined copper
market is anticipated for 2014 which equates to 2% of total
global consumption.
30 Operating Review
38 Financial Review
Kazakhmys Mining has annual sales contracts in place for the
majority of its copper cathode production in 2014. Around 85%
of the contracted copper cathode sales will be directed to Asia,
principally China. The remaining contracted volumes will be sold
into the CIS market. The pricing of copper cathode sales is based
on the LME price plus a premium to reflect the terms of trade.
In 2014, premiums on contracted cathode sales to China have
increased with the escalation of Codelco’s annual Chinese
premium, reflecting strong Chinese demand.
2013 global refined copper consumption
16%
44%
Europe
China
Rest of the World
31%
December 2013
9%
Zinc
The LME zinc price averaged $1,908 per tonne in 2013, marginally
below the average price in 2012. The zinc price movements were
broadly consistent with the copper market in 2013, starting the
year relatively strongly before prices declined due to uncertainty
over future demand levels.
The refined zinc market is forecast to have recorded a supply
deficit of 0.1 MT in 2013, which equates to around 1% of total
global consumption, marginally below the supply deficit of 0.4 MT
in 2012. The lower supply deficit was mainly due to a 6% increase
in zinc production from smelters in China, with zinc output from
mines only 2% above the prior year.
Precious metals
Strategic Report
Following the suspension of the Group’s smelter in Zhezkazgan,
around 40% of copper product sales in 2014 will be in the form
of copper concentrate to smelters in China. The majority of
the copper concentrate sales will be made under annual sales
contracts with a payable rate of 96.5% for copper and 90% for
the silver metal included in the concentrate. The treatment and
refining charges for the copper concentrate have been set at
the annual benchmark. Pricing for the metal in the concentrate
is referenced to the LME, together with an additional charge
reflecting the current concentrate supply surplus to
Chinese smelters.
Gold
The LBMA gold price averaged $1,411 per ounce in 2013, 15%
below the average price in the prior year. Gold finished 2013 at
$1,205 per ounce, a 27% fall from the traded price at the start
of the year. Gold benefited from its status as a ‘safe haven’
asset during the global economic downturn and this was the
first sustained decline in gold prices for a number of years.
The gold market is mainly supported by jewellery and investment
demand. As yields from equity markets and US Treasury bonds
improved during 2013 investment demand for the precious metal
declined, particularly in the second quarter of the year. This was
reflected in the gold exchange-traded funds where volumes fell
significantly during 2013. The prospect of the tapering of the US
Federal Reserve’s monetary stimulus measures also negatively
impacted investor sentiment towards the metal.
Investor sentiment around the tapering of the US Federal Reserve’s
monetary stimulus, the US dollar, and inflation expectations are
expected to influence gold prices in 2014.
In 2014, Kazakhmys Mining expects to continue gold bar sales to
the National Bank of Kazakhstan based on the LBMA price at the
time of delivery. Limited volumes of gold doré sales will be made
to Europe, also referenced to the LBMA price.
Silver
The LBMA silver price averaged $23.79 per ounce in 2013,
24% below the average price in the prior year. Silver finished
the year at $19.50 per ounce, a 37% fall from the start of 2013.
While the silver market is mainly supported by industrial demand,
the silver price is influenced by investor sentiment. Industrial
demand for silver was marginally above the prior year but negative
investor sentiment towards silver was reflected in the lower prices
in 2013. As with gold, the improved yields in other asset classes and
the prospect of the tapering of the US Federal Reserve’s monetary
stimulus had a negative impact on prices.
Similar to gold, investor sentiment is likely to have a significant
influence on silver prices in 2014.
Kazakhmys Mining will sell its 2014 silver production to traders
based in Asia for delivery to Europe and Asia, principally under
annual contracts based on the LBMA price at the time of delivery.
In 2014, the refined zinc market is forecast to remain tight, with
supply growth expected to return the market back to a balanced
position. The zinc market will however be highly dependent on
China, which accounts for 45% of total global zinc demand.
Kazakhmys Mining has concluded its annual zinc concentrate
contracts for 2014 and will sell the majority of production within
the CIS, with the remaining output supplied to Chinese customers.
Pricing will be based on the LME price for zinc less processing
charges which are set on an annual basis.
www.kazakhmys.com
15
Strategic Report
Financial and Operating Overview
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Copper revenues were in line with 2012 as higher copper cathode
equivalent sales volumes compensated for lower realised prices,
following an 8% fall in the average LME price. The 11% increase
in copper cathode equivalent sales volumes was attributable to
a reduction in finished goods inventory. By-product revenues
declined, as sales of gold in 2012 benefited from the sale of
inventory accumulated in the second half of 2011, and realised
prices for gold and silver by-products were lower.
Segmental EBITDA was 36% below the prior year as revenues
fell by 8% and cash operating costs at the Mining Division rose by
7%. Cost increases were driven by inflationary pressures and a
4% increase in ore extraction. Cash operating costs fell in the
second half as the cost optimisation programme and asset
review took effect.
The gross cash cost of copper was 328 US cents per pound
in 2013, 1% lower than in 2012.
The net cash cost of copper increased to 222 US cents per pound
mainly as a result of the decrease in by-product credits in 2013,
which were affected by lower commodity prices for gold and
silver and reduced gold sales volumes.
The Group’s 50% share of EBITDA of Ekibastuz GRES-1 fell
by 19% to $153 million, reflecting the shortened period to 5
December 2013, when the Group accepted an offer for its sale,
compared to the full year in 2012, lower sales volumes and
higher operating costs.
Group EBITDA included $276 million in respect of the Group’s
26% holding in ENRC for the first half of 2013, prior to being
reclassified as an asset held for sale at the end of June. In 2012, the
contribution from ENRC of $548 million was for the full 12 months
and benefited from higher commodity prices for its major products,
iron ore and ferrochrome.
EPS based on Underlying Profit was $0.37 per share, affected by
the reduction in EBITDA. In addition, the Group’s all-in effective
tax rate, which includes MET but excludes special items, increased
as the relative impact of MET and expenses which are nondeductible for tax was more pronounced on the lower profit.
During the year, the Group recognised an impairment of its
investment in ENRC of $823 million. A review of assets is ongoing,
and an impairment of $575 million (including $98 million of tax assets)
has been recognised in respect of the Zhezkazgan Region, reflecting
16
$ million (unless otherwise stated)
Revenues
Segmental EBITDA (excluding special items)
Group EBITDA (excluding special items)
EPS based on Underlying Profit ($)
Net cash cost excluding purchased
concentrate (USc/lb)
Free Cash Flow
Net debt
2013
2012
3,099
873
1,149
0.37
3,353
1,364
1,912
0.94
222
(171)
(771)
174
85
(707)
management’s assessment of the challenging economic outlook
for the Region. A further $193 million impairment charge relates to
specific assets and medium-sized projects which have been suspended
or subject to a change in intended use. These impairments have been
treated as special items and excluded from Underlying Profit.
Free Cash Flow was a negative $171 million, which includes interest
payments of $156 million. Management successfully took measures
to control operating costs and reduce sustaining capital expenditure,
however Free Cash Flow was impacted by reduced profits and no
dividends being received from ENRC or Ekibastuz GRES-I.
Capital expenditure on the major growth projects, Bozshakol and
Aktogay, increased from $458 million in 2012 to $660 million in 2013.
In May 2013, the sale of MKM, a downstream copper processing
plant in Germany, was completed for proceeds of $55 million.
The disposal of the Group’s 26% holding in ENRC was completed
in November 2013 for total net proceeds of $1,194 million,
comprising $875 million in cash and 77 million Kazakhmys PLC
shares, which were subsequently cancelled. Shareholder approval
was received in January 2014 for the disposal of the Group’s 50%
share in Ekibastuz GRES-1 for net proceeds of $1,249 million.
The final $200 million was drawn down on the $2.7 billion CDB
Samruk-Kazyna facility, primarily for the Bozshakol project, and
repayments of $107 million were made in 2013. In January 2014,
a further $400 million was repaid early in respect of part of the
Samruk-Kazyna facility reserved for two medium-sized projects,
which are not expected to proceed in the near term. $57 million
was drawn down on the $1.5 billion CDB facility for the Aktogay
project, leaving a further $1.4 billion available to be drawn. The five
year PXF facility was $500 million drawn by the year end when the
availability period expired. The liquid funds of the Group amounted
to $2.3 billion compared to $1.8 billion at 31 December 2012 and
are mainly held in the UK.
The Group’s net debt at 31 December 2013 was $771 million
compared to $707 million at 31 December 2012. After receipt
of the $1.25 billion net proceeds from the Ekibastuz transaction,
on a pro forma basis at 31 December 2013, the Group would
return to a net funds position of $478 million.
The disposal proceeds will mainly be used to strengthen the
balance sheet during a period of significant capital investment in the
construction of the major projects. The funds held will reduce the
future borrowing requirements of the Group and could be used
to repay existing facilities if so required.
In 2013, Kazakhmys agreed the sale of its remaining non-core assets,
strengthening the Group’s liquidity. The asset review will continue in
2014 and, if the transaction to transfer the Zhezkazgan and Central
Region assets into private ownership is successful, will result in more
profitable and cash generative operations. The improved liquidity
and cash flows will provide a solid platform for the delivery of the
growth projects, with Bozshakol to launch in 2015.
10 Our Strategy
30 Operating Review
38 Financial Review
Strategic Report
Our Divisions
Mining
MT
of ore produced
%
of copper grade
The Mining Division achieved its production
targets for 2013, with copper cathode
equivalent output of 294 kt and strong
gold, silver and zinc output.
Total ore output was 4% above the
prior year with a full year of production
from the open pit Konyrat mine which
re-commenced operation in July 2012.
Production was also higher at the West
Nurkazgan mine which benefited from the
upgrade of its ore transportation system.
During the year, the focus was on profitable
production and ore output at the lower
grade zones in the Zhezkazgan
Region reduced.
Copper grades rose from 0.95% in 2012
to 0.99% in 2013, improving the Mining
Division’s cash flows with the extraction
of higher content material particularly in
the Zhezkazgan Region. The higher grades
offset the impact of incremental production
from the low grade Konyrat mine.
Overall copper in concentrate output in
2013 was 10.9 kt above the prior year at
314.6 kt, due to the combination of higher
ore output and copper grades. Copper
cathode equivalent production volumes of
294 kt were slightly above the prior year
which benefited from a larger reduction
in work in progress at the smelters.
The production of by-products, which
contributed around 26% of the Mining
Division’s revenues in 2013, was ahead
of the guidance provided for the year.
Compared to the prior year, zinc in
concentrate output fell by 17.5 kt to
134.1 kt due to lower ore extraction and
grades at the Artemyevsky mine. In respect
of precious metals, silver product output
of 14,348 koz was 14% above the prior
year benefiting from a release of work in
progress. Gold production decreased by
17% to 107.5 koz with the lower volume
of gold extracted at the Artemyevsky
and Abyz mines.
Significant changes were made to the
Mining Division’s operations in 2013 as
part of the optimisation programme and
asset review. The measures taken in 2013
included the suspension of the Satpayev
and Berezovsky concentrators to raise
utilisation levels. Operations at the
Zhezkazgan smelter were also suspended
in 2013 and the majority of the copper
concentrate output from the region is
now sold directly to customers,
predominantly based in China.
Operational improvements were also
made during the year and included the
reconstruction of the Nikolayevsky
concentrator to increase recovery rates
and its processing capacity. While the
project will complete in the second half of
2014, the concentrator’s copper recovery
rate has already been substantially improved.
Upgrades to the processing capacity of the
Balkhash concentrator were made during
the year to cater for the additional ore
output from Konyrat. Optimisation of the
ore transport networks at the Zhomart
and West Nurkazgan mines were
successfully completed during the year.
Outlook
Copper cathode equivalent production
from own material is anticipated to be
between 285 kt and 295 kt in 2014, with
approximately 40% of the production in the
form of copper concentrate sales to third
parties. The focus will remain on profitable
production in 2014 with ore output and
copper grades expected to be consistent
with 2013 levels. Production volumes will
include initial copper in concentrate output
from the Bozymchak mine which is due
to commence in the first half of 2014.
Power
of GWh
net power generated
MW
of net dependable capacity
The net power generated at Ekibastuz
GRES-1 declined by 11% in 2013 due to
lower demand in the domestic market and
competition from domestic power stations
supplying electricity at relatively low tariffs to
maintain their sales volumes. The decline in
Ekibastuz GRES-1’s domestic sales volumes
was partially offset by an increase in sales
volumes exported to Russia.
Net power generated at the captive power
stations during 2013 was above the prior
year. Output was assisted by an improved
equipment performance and an increase in
availability following the enhancements made
to the maintenance programmes at the
power stations.
Outlook
In December 2013, Kazakhmys announced
that it had entered into an agreement to sell
its interest in Ekibastuz GRES-1 to SamrukEnergo. The transaction was approved by
shareholders on 7 January 2014 and it is
expected that the transaction will complete
in the first half of 2014, subject to customary
regulatory approvals.
Generation volumes at the captive power
stations are anticipated to decline in 2014, as
turbine replacements and other capital works
are conducted. The benefit of these works
will be seen in future years as the operational
efficiency of the power stations improves.
www.kazakhmys.com
17
Strategic Report
Risk Management Overview
Risk management
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The Group’s approach to internal control is business risk driven,
with emphasis given to operational, compliance and financial risks.
Management have continued to develop the Group’s risk evaluation
process, with enhanced risk profiling exercises undertaken by
operating businesses to identify, evaluate and control risk. Further
details of the Group’s approach to internal control are set out in
the Governance Framework section on pages 66 and 67.
The Group, in the course of its business activities, is exposed
to strategic, financial, operational and compliance risks. Overall
management of these risks is vested in the Board, with the
Audit Committee having delegated authority for reviewing the
Group’s risk management framework and the Projects Assurance
Committee having delegated authority for providing assurance
on the Group’s major growth projects at Bozshakol and Aktogay.
The Board has approved a formalised but pragmatic Group risk
management framework. This framework is designed to provide
assurance that risks are identified and managed in a manner
appropriate to the Group’s circumstances. It comprises risk
identification, assessment and management processes,
together with risk response and monitoring activities.
The Group Risk Manager coordinates the risk assessment
and identification activities, and facilitates the development of
appropriate responses to identified risks. Details of the process
for identifying and managing the Group’s risks are set out below
and further information on the risks identified with mitigating
actions, where relevant, are set out in the Principal Risks section
on pages 48 to 52.
Risk governance structure
Board oversight
Assurance
Internal audit
programme
Overall responsibility for the Group’s system of internal control and
risk management. Approves overall Group risk appetite
Audit Committee
Reviews the adequacy and
effectiveness of the Group’s
internal control system
Reviews reports on
significant risks and controls
Receives and reviews
reports from internal audit
Group Health, Safety and
Environment Committee
Reviews reports of
significant health, safety
and environmental
risks and actions being
taken to remove or
mitigate them
Remuneration Committee
Establishes a remuneration
policy for the Group’s
senior management which
enables them to share in
the long-term success of
the Group without
encouraging excessive
risk-taking
Identification, assessment and mitigation
Risk profiling
Risk profiling exercises are conducted by
operational management in conjunction with
the Group Risk Manager to identify, assess
and control business risks
18
Site assessment
Risk assessments of key sites conducted
by the Group Risk Manager and
independent experts
Internal audit
department
Assesses management
assurance processes
Advises on the
adequacy and
effectiveness of
systems to manage
business risk
48 Principal Risks
M
Risk management framework
M anage
How we profile our risk reporting
3
Compliance risks
Kazakhmys’ reputation and financial results may be adversely
affected by its failure to comply with regulatory and statutory
requirements. The following risks represent the significant
compliance risks identified by management:
Financial risks
Kazakhmys’ operations and financial results may be adversely
affected by the Group’s financial strategy and changes in the
global economy. The following risks represent the significant
financial risks identified by management:
•
•
•
•
•
Commodity prices
Exposure to China
Acquisitions and divestments
Liquidity risk
Taxation
A full description of our principal risks, including a detailed
description, impact and mitigation actions can be found
on pages 48 to 52.
2
Impact
• Subsoil use rights
• Environmental compliance
A ss
nse
Health and safety
Business interruption
Political risk
New projects
Change management
Labour, mining equipment and supplies
Labour and community relations
Reserves and resources
ess
Res p o
Operational risks
Kazakhmys’ operations, financial results and reputation may
be adversely affected by a number of internal and external
factors impacting its businesses and employees. The following
risks represent the significant operational risks identified
by management:
•
•
•
•
•
•
•
•
Ide
nt
if
r
ito
n
o
y
Once the Group’s significant risks have been identified,
each risk is then assessed by likelihood of occurrence and
impact on the Group. Each risk is then placed on to the
Group risk map and regularly reviewed to ensure accurate
representation as to its probability and impact on the Group.
There are also other risks which have been identified by
management but which are not considered as one of the
Group’s significant risks at the current time. These risks are
also placed on to the Group risk map but are identified as
risks being closely monitored by management. A graphic
representation of the Group risk map is shown below.
Strategic Report
Risk profile
1
0
1
2
3
Probability
Significant risks
Closely monitored risks
www.kazakhmys.com
19
Strategic Report
Corporate Responsibility Overview
A culture of safety
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This year we saw an improvement in
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Eduard Ogay, Executive Director
Message from Eduard Ogay
Underground mining is a hazardous activity and despite increased
focus and leadership attention to our health and safety programme,
overall results are disappointing. Nonetheless, there are grounds for
optimism – the number of fatal incidents from rock fall, previously
our single biggest area of concern, halved compared to last year.
There is, however, still much to do to make our business as safe
as possible at every stage and in every area of our operations.
20
I regret to report that there were 18 fatalities in 2013, one less
than in the previous year. This is a slower improvement than we
had hoped, but we remain absolutely committed to achieving and
maintaining our zero fatalities goal. Instilling a safety culture remains
our priority. In particular, we continue to ensure our employees are
well-trained and that contractors working on our sites understand
and apply our safety standards.
Our employees have a right to a safe working environment.
Kazakhmys recognises all human rights as defined in the Universal
Declaration of Human Rights. We are committed to ensuring our
operations do not infringe on these rights, for instance by providing
fair, safe and secure working conditions in line with the International
Labour Organization’s Declaration on Fundamental Principles and
Rights at Work. We respect the right to freedom of association
and consult our employees and trade unions about changes to
our business and employment conditions. Local communities are
consulted during project development and about major operational
changes that may affect them, such as the transfer of ownership
of our social facilities to local governments and community groups.
We respect and protect local heritage and culture.
It is with great pleasure that we welcomed Lynda Armstrong
as a non-executive Director of Kazakhmys PLC in October 2013.
Lynda is Chair of the trustees of the British Safety Council and joins
the Group Health, Safety and Environment Committee, bringing
to bear her years of experience in the extractive sector to help us
reach our safety goals. We are proud to sustain a relatively high level
of gender diversity for the mining industry, both at management
and operational levels. In 2013, 11% of our Board members, 21%
of our senior managers and 34% of total employees were women.
We also welcome the Government of Kazakhstan’s vision to
make the transition to a green economy by 2050, and continue to
implement energy efficiency plans and other initiatives to ensure our
business plays its part. We look forward to engaging in consultations
to ensure our environmental strategy is fully aligned with the
Government’s proposed approach.
Eduard Ogay
Executive Director
53 Corporate Responsibility
Strategic Report
Corporate Responsibility (CR) Key Performance Indicators
Further to the financial and production KPIs on pages 12 and 13, we also report our performance
against six CR KPIs that measure our most significant social and environmental impacts.
Number of fatalities1
(direct employees and contractors)
Lost-time injury frequency rate (LTIFR)1
(direct employees)
SO2 emissions
(tonnes, Mining Division only)
18
1.84
68,573
13
13
18
12
19
11
24
11
10
1.55
Long-term goal
Zero fatalities
From 2011, data on fatalities includes contractor
fatalities, data for prior years is for Kazakhmys
employees only.
13
68,573
12
103,307
11
122,487
10
1.47
09 n/a
15
2013 performance
15 employees and three contractors sadly
died while working at Kazakhmys this year,
compared with 15 and four respectively
in 2012. We continue to work hard to
prevent further fatalities by strengthening
our efforts in our major hazard areas.
1
10
27
09 n/a
1.84
1.80 2
12
164,550
189,099
09 n/a
2013 performance
The total number of LTIs has reduced
from 174 in 2012 to 172 in 2013, however,
there has also been a reduction in total
hours worked following the suspension
of the smelter in Zhezkazgan and the
concentrator in Satpayev, which led
to a higher LTIFR.
2013 performance
Sulphur dioxide emissions reduced by
34% in the Mining Division following the
suspension of the smelter in Zhezkazgan
in September 2013.
Long-term goal
Annual reduction of 10%
1
Number of working hours lost through injury among
direct employees, per million hours worked.
2
We have restated the LTIFR figure for 2012 to
exclude contractor man-hours at Ekibastuz GRES-1.
CO2e emissions
(million tonnes, Mining and Power Divisions)
Safety training
(average hours per employee trained)
Social investment
($ million, Mining Division only)
25.7
39
57
13
25.7
12
27.9
13
12
11
24.2
11
10
24.4
10
09 n/a
10.7
2013 performance
Carbon dioxide equivalent emissions
reduced by 8% in 2013, reflecting lower
production output and power demand.
A fuller discussion of our performance
is reported on page 55, along with an
emissions intensity ratio and details of the
methodology used to calculate emissions.
39.0
40.1
41.4
38.5
09 n/a
2013 performance
Every employee engaged in operational
and high-risk activities receives approximately
40 hours of health and safety training each
year. In addition to this, we ran an extensive
health and safety training programme
together with our external consultants
DuPont, which is not reflected in this
figure. For more details please see
page 53 of this report.
13
12
11
10
57
52
79
200
09 35
2013 performance
We continue to support local communities
and other social projects as part of our
obligations under subsoil licences, as well
as by providing voluntary sponsorship on
an individual basis. Our approach to social
investment prioritises projects in education,
sports and culture, local infrastructure
and public health.
www.kazakhmys.com
21
Strategic Report
Corporate Governance Overview
Committed to
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details of the matters the Board and its committees considered
during the financial year. However, I would like to draw your
attention to some specific areas.
Board role and effectiveness
The core purpose of the Board is to create and deliver the
long-term success of the Company and long-term returns for
shareholders. This requires the Board to set the Company’s
strategic aims, ensure that the necessary financial and human
resource structures are in place to achieve the Company’s objectives,
review management performance in delivering against strategy and
set the Company’s risk appetite. The Board ensures that the risk
management measures and internal controls which are in place are
appropriate and effective. The Board is aware of its obligations to
the Company’s shareholders and other stakeholders and responds
to their needs by transparent reporting and active engagement.
Again, this year we have carried out an in-depth review of the
Board’s effectiveness and have produced an action plan to ensure
constant improvement.
Dear fellow shareholder,
I am delighted to present this introduction to the Company’s corporate
governance policies and procedures in my first Annual Report and
Accounts since my appointment as Chairman. I am fully committed
to strong corporate governance and firmly believe in the benefits
an effective Board can bring to an organisation. I believe it is our
governance structures that underpin our ability to deliver our strategy.
The Board is currently reviewing the Financial Conduct Authority’s
(FCA) proposals on ‘Enhancing the Effectiveness of the Listing
Regime’, which include changes to the Listing Rules for premium
listed companies with a controlling shareholder. The final rules are
expected to be implemented in mid-2014 at the earliest and details
of any changes to Kazakhmys’ corporate governance will be set out
in next year’s annual report and accounts.
In September 2012, the Financial Reporting Council (FRC) published
a revised edition of the UK Corporate Governance Code (the ‘Code’)
which applies to Kazakhmys for the financial year ended 31 December
2013. The Board has reviewed the provisions of the Code and
considered how best it can comply with all of the recommendations
to ensure the effective operation of its business. The Company’s
policies on corporate direction and control ensure that the Company
applies all of the principles of good governance contained in the
Code to the organisational structure it has adopted for conducting
its business, reviewing its remuneration policy, maintaining its relations
with its shareholders, and the procedures adhered to in its financial
reporting, internal control and assurance processes.
The Governance Framework report set out on pages 60 to 75
explains in detail how the Company has applied the principles and
complied with the provisions of the Code and also provides further
22
Changes to the Board
There have been a number of changes to the Board during the
year. I succeeded Vladimir Kim as Chairman following his decision
to step down at the conclusion of the annual general meeting on
17 May 2013. I would like to take this opportunity to thank Vladimir
for his excellent stewardship of the Company over the last seven
years and I am delighted that he has decided to continue his
involvement with Kazakhmys as a non-executive Director and
as executive chairman of Kazakhmys Corporation LLC. This will
ensure the Group continues to benefit from his contributions and
I will benefit from his advice as Kazakhmys moves towards the next
stage in its development. Furthermore, as I was independent upon
appointment as Chairman, Kazakhmys now complies fully with the
provisions of the Code.
Philip Aiken and Daulet Yergozhin stood down from the Board in
August and December 2013, respectively, and I would like to thank
them for their committed services to the Board. During the year,
Michael Lynch-Bell and Lynda Armstrong joined the Board. Michael
brings considerable experience of the financial and global mining and
energy sectors and Lynda’s knowledge of the extractives industry
and, particularly her experience in safety, technical and operational
areas, will be invaluable in achieving the Group’s objectives. The fresh
insights and external perspectives that Michael and Lynda bring are
complemented by the Company knowledge and understanding that
our longer-serving Directors provide. I am confident that we not
only have a Board focused on good governance but we have the
right Board composition and that the Board works effectively,
allowing us to respond to challenges as they arise. Further details
on the Company’s process to identify new members of the Board
can be found on page 75.
Diversity
The Company takes account of diversity when recruiting,
including when considering Board appointments. However, whilst
we see a significant business benefit in having a Board drawn from
a diverse range of backgrounds who bring the required expertise,
cultural diversity and different perspectives to Board discussions,
we do not believe this is achieved through simple quotas, whether
it be gender or otherwise, and will continue to appoint candidates
based on merit and relevant experience in accordance with the
requirements of the Code.
67 Board Committees
The Board consists of Directors with a wide range of skills
and business experience drawn from a number of industries,
which is critical for bringing both the expertise required, and to
enable different perspectives to be brought to Board discussions.
Furthermore, the Board comprises a range of nationalities, which
brings cultural diversity as well as different geographical experiences
and viewpoints. The combination of these factors mean that the
Board benefits from a diverse range of competencies, perspectives
and thoughts, which provides a dynamic environment for
decision-making.
Internal control and risk management
The Board has overall responsibility for the Group’s system
of internal control and risk management and for reviewing the
effectiveness of this system. We have therefore adopted a
risk-based approach in establishing this system. The Group, in the
course of its business activities, is exposed to strategic, financial,
operational and compliance risks. Overall management of these
risks lies with the Board, with the Audit Committee having delegated
authority for reviewing the Group’s risk management framework.
More detailed information on the Group’s system of internal control
and risk management can be found in the Governance Framework
report on pages 66 and 67 and the Risk Management Overview
section on pages 18 and 19.
Accountability
The Board considers that the Annual Report and Accounts,
taken as a whole, is fair, balanced and understandable and provides
the necessary information required for shareholders to assess the
Company’s performance, business model and strategy, and that
the business continues to operate as a going concern.
Shareholder engagement
Engaging with shareholders is one of the key aspects of good
corporate governance. Throughout the year the Chief Executive,
Chief Financial Officer and I, supported by the Group’s corporate
communications team, regularly met with institutional shareholders
and analysts. The Board also receives regular reports from the
Corporate Communications department on its activities and,
in particular, on shareholder sentiment and feedback.
Strategic Report
The Board recognises the need to create the conditions that
foster talent and encourage all employees to achieve their full career
potential in the Company. As part of our overall approach to human
resource management we encourage employee diversity and aim
to ensure that Kazakhmys’ future senior leadership team reflects
the demographics of the countries in which we operate and the
general employee base.
The Board continues to believe that ongoing engagement with
shareholders and other stakeholders is vital to ensuring their
views and perspectives are fully understood. This will remain
a key focus for us in 2014.
As well as the annual general meeting held on 17 May 2013,
Kazakhmys convened two further General Meetings on 2 August
2013 and 7 January 2014 to request shareholder approval of two
important transactions that would assist the Company in its strategy
to focus on its core copper business. At both General Meetings,
members of the Board who were present made themselves
available to discuss the proposed transactions with shareholders.
We received strong shareholder approval in respect of both of
these transactions and are grateful for your support as we take
Kazakhmys forward.
At the Company’s forthcoming Annual General Meeting all
Directors who are able to attend will be available, as usual, to
meet with shareholders after the meeting to discuss any issues
they may have. I encourage as many shareholders as possible to
attend the Annual General Meeting on 8 May 2014.
Committee framework
Kazakhmys has a structured and established corporate governance
framework in place which is committed to the Board’s aim of
achieving long-term and sustainable shareholder value. As a Board,
we believe that for a framework to work well, constant evaluation is
required to ensure that the overall aims are stretching but achievable.
The Board has four principal committees to deal with specific
aspects of the Group’s affairs: the Audit Committee; Group Health,
Safety and Environment Committee; Remuneration Committee;
and Nomination Committee. Detailed information on the roles
and responsibilities, and the activities undertaken during the year
by each committee are set out in their respective sections as
referred to below.
I look forward to leading the Board through this period of
transition and to continue to develop and strengthen our
corporate governance to meet the challenges ahead.
Simon Heale
Chairman
Board committees
Michael Lynch-Bell
Charles Watson
Simon Heale
Lord Renwick of Clifton, KCMG
Chairman
Chairman
Chairman
Chairman
Audit Committee
Nomination Committee
See page 68
See page 72
See page 73
See page 76
www.kazakhmys.com
23
Strategic Report
Board of Directors
Experienced
leadership
Directors’ experience
7
2
3
6
Metals and mining
Finance
Oil and gas
Health and safety
Directors’ nationality
5
1
Simon Heale
Oleg Novachuk
Non-executive Chairman
Appointed to the Board: 2007
Nationality: British
Skills and experience: Simon Heale has
significant global marketing and business
operations and management experience
having been chief operating officer of Jardine
Fleming Limited, deputy managing director of
Cathay Pacific Airways and chief executive
of The London Metal Exchange. He has also
been a non-executive director and chairman
of Panmure Gordon & Co plc, and a
non-executive director of PZ Cussons plc.
Other appointments: Chairman of Gulf
Marine Services and a non-executive
director of Morgan Advanced Materials PLC,
Coats plc and Marex Spectron Group Limited.
He is also a trustee and treasurer of Macmillan
Cancer Support.
Committee memberships: Chairman of
the Nomination Committee and member of
the Group Health, Safety and Environment,
and Remuneration Committees.
Chief Executive
Nationality: Kazakhstani
Skills and experience: Oleg Novachuk
joined the Group in 2001 and was appointed
Chief Executive in 2007, having been Finance
Director since 2005. He was formerly vice
president of financial projects for Kazakhmys
Corporation LLC and the financial adviser to
the president of Kazakhmys Corporation LLC,
and chairman of the board of directors of
Kazprombank JSC.
Eduard Ogay
Michael Lynch-Bell
Executive Director
Skills and experience: Eduard Ogay was
appointed as an executive Director in 2011,
having joined the Group in 2001 as director
of marketing and international relations,
becoming director of corporate development
in 2005. He was appointed chief executive
officer of Kazakhmys Corporation LLC,
the Group’s principal subsidiary, in 2006,
a position he continues to retain.
Non-executive Director and Senior
Independent Director
Appointed to the Board: 27 February 2013
Skills and experience: Michael Lynch-Bell has
extensive experience in the mining, oil and gas
industries having spent his whole 38 year career
with Ernst & Young developing and later
leading its global mining and energy practices.
During his time with Ernst & Young, he played
a key role in establishing Ernst & Young’s
practice in Kazakhstan and advised a number
of major CIS companies on transactions. He
retired as senior partner of Ernst & Young’s
transaction advisory practice for mining and
metals and as an elected member of its global
advisory council in June 2012.
Other appointments: Non-executive
director of Equus Petroleum Plc, Seven Energy
International Limited and Lenta Limited. He is
also a board member and treasurer of Action
Aid International.
the Audit Committee and member of the
Nomination Committee.
3
British
Kazakhstani
Australian
Length of tenure of independent
non-executive Directors
3
1
1
0-3 Years
3-6 Years
6-9 Years
24
67 Board Committees
Strategic Report
Lynda Armstrong OBE
Clinton Dines
Vladimir Kim
Non-executive Director
Appointed to the Board: 21 October 2013
Skills and experience: Lynda Armstrong, a
geophysicist by training, has over 30 years’
natural resources experience with Shell.
During her time with Shell she held a number
of senior exploration and operational roles,
including Director UK Exploration and New
Business Development, Exploration Director
of Petroleum Development Oman and
Technical Vice President for Shell International.
Other appointments: Chair of the trustees
of the British Safety Council, a non-executive
director of the Central Europe Oil Company
Limited and director of Calyx Consulting Ltd.
Committee memberships: Member of the
Group Health, Safety and Environment,
and Remuneration Committees.
Nationality: Australian
Skills and experience: Clinton Dines has
been involved in business in China since 1980,
including senior positions with the Jardine
Matheson Group, Santa Fe Transport Group
and Asia Securities Venture Capital. In 1988,
he joined BHP as their senior executive in
China and, following the merger of BHP and
Billiton in 2001, became president, BHP Billiton
China, a position from which he retired in
2009 prior to joining Kazakhmys. He brings
exceptional knowledge of China combined
with global resource industry and management
experience. He was previously a member of
the advisory board of Pacific Aluminium.
Other appointments: Executive chairman,
Asia of Caledonia (Private) Investments Pty
Limited and a non-executive director of
Zanaga Iron Ore Company Limited.
Committee memberships: Member of
the Audit, and Group Health, Safety and
Environment Committees.
Skills and experience: Vladimir Kim joined
the Group in 1995, when he was appointed
managing director and chief executive officer
of Zhezkazgantsvetmet JSC and was elected
chairman of the board of directors of that
company in 2000. He was appointed Chairman
of the Company in 2005 prior to its listing on
the London Stock Exchange. With extensive
knowledge of the mining industry, a thorough
working knowledge of the CIS and an
exemplary understanding of the political and
regulatory environment in Kazakhstan, Vladimir
Kim brings extensive Kazakh mining experience
and effective Board management skills. Vladimir
Kim stepped down as Chairman in May 2013,
but remains on the Board as a non-executive
Director and executive chairman of
Kazakhmys Corporation LLC.
Charles Watson
Skills and experience: Lord Renwick has had
a diplomatic career spanning over 30 years,
including serving as British Ambassador to the
United States and to South Africa. He was a
non-executive director of BHP Billiton plc,
SABMiller plc, British Airways plc, Liberty
International plc, Fluor Corporation, Harmony
Gold Mining Company Limited and Bumi plc.
Lord Renwick’s diplomatic, financial and mining
experience make him a valuable contributor
to the Board.
Other appointments: Deputy chairman
of Fleming Family & Partners Limited and
a non-executive director of Compagnie
Financière Richemont SA. He is also
vice chairman, Investment Banking
of J.P. Morgan Europe and vice chairman
of J.P. Morgan Cazenove.
the Remuneration Committee and member
of the Nomination Committee.
Skills and experience: Charles Watson has
an extensive background in both operational
management and major project delivery,
having spent 29 years at Shell. During his time
at Shell he held a number of senior executive
positions throughout the world, culminating in
his appointment as executive vice president
covering Russia and the CIS, including oversight
of Shell’s activities in Kazakhstan, chairman
of Shell Russia and chairman of the board
of directors for the Sakhalin Energy
Investment Company.
Other appointments: Non-executive director
of Taipan Resources Inc. and JSOC Bashneft.
the Group Health, Safety and Environment
Committee and member of the Audit and
Remuneration Committees.
www.kazakhmys.com
25
Strategic Report
Annual Statement on Remuneration
In accordance with regulations issued by the Secretary of State
for Business, Innovation and Skills, the Directors’ Remuneration
Report has been split into three sections: an Annual Statement by
the chairman of the Remuneration Committee, the Policy Report
and the Annual Report on Remuneration. The Policy Report
(set out on pages 76 to 81) sets out the forward-looking
remuneration policy for the Company and will be put to
shareholders for approval in a binding vote at the Annual General
Meeting on 8 May 2014. The formal effective date of the policy
will be from the date of the approval by shareholders at the
Annual General Meeting on 8 May 2014. The Annual Report
on Remuneration (set out on pages 81 to 88), which describes
how the policy has been implemented in the year under review
and how it will be implemented for the year ahead, will be
subject to an advisory vote at the Annual General Meeting.
Remuneration
Report
The changes to the structure and layout of the 2013 Directors’
Remuneration Report are designed to improve transparency
and to provide additional information on the alignment of
strategy and executive Director remuneration. It is hoped that
these changes to the Committee’s disclosure practices will create
a fuller understanding of the Group’s remuneration practices and
enhance its engagement with key stakeholders going forward.
Chairman, Remuneration Committee
On behalf of the Board, I am pleased to introduce the
2013 Directors’ Remuneration Report which sets out details
of the remuneration policy for executive and non-executive
Directors, describes how the remuneration policy is implemented
and discloses the amounts paid relating to the year ended
31 December 2013.
Objectives of the Committee
The Committee’s objective is to attract and retain high calibre
executives who are focused to deliver the Group’s strategic and
business objectives, while relating reward to performance in the
context of appropriate risk and safety management, and aligning
the interests of executive Directors and senior managers with
those of shareholders to build a sustainable performance culture.
Executive Director remuneration structure
Summary of remuneration structure
Fixed
remuneration
Variable
remuneration
Base salary
Benefits
Short term – Annual
Annual bonus plan – linked to
Group Performance
Long term – Five years
Long term incentive plan linked
to relative TSR performance
against comparator group,
combined with a five year
retention period
26
Total
remuneration
76 Remuneration Report
Remuneration structure
In order to provide a straightforward and transparent
remuneration structure, the remuneration of executive
Directors is made up of base salary, plus some benefits-in-kind,
and, subject to stretching performance conditions, cash awarded
under an annual bonus plan and shares awarded under a
Long Term Incentive Plan.
2013 performance and reward
This has been a challenging year for Kazakhmys and the mining
sector as a whole. Weak copper prices and rising costs have
made for tough trading conditions and impacted profitability and
free cash flow. Despite the challenging market conditions the
executive management team were able to deliver satisfactory
operational performance. Although measures were taken in the
second half of the year to reduce costs, financial performance
was below target, impacted by lower commodity prices and cost
pressures. Share price performance was disappointing. Whilst
Bozshakol remains on track for first production in 2015, an
additional contractor has been appointed, which has led to an
increase in the overall budget cost for the project of around
$350 million. Safety performance was not satisfactory and, in light
of this, the Committee scaled back resulting bonuses. The overall
level of performance achieved resulted in bonuses paying out at
35% of maximum bonus potential for the executive Directors.
It is expected that the 2011 Long Term Incentive Plan awards,
measuring performance from 1 January 2011 to 31 December
2013 and 1 June 2011 to 31 May 2014 (combined 41 month
performance period) will lapse on 1 June 2014 on failing to
achieve the required total shareholder return target.
• To enhance the alignment of interest between executive
Directors and shareholders, the Committee agreed that
executive Directors who participate in the Long Term
Incentive Plan should be required to hold awards
for a period of five years from the date of grant. The
TSR comparator group of the Long Term Incentive Plan
was also reviewed and amendments made to reflect the
delisting of two constituents and the merger of two others.
Further details are given on pages 78 and 84.
Strategic Report
The Group is focused on restructuring its operations, optimising
its assets, delivering its growth projects and taking advantage
of natural resource opportunities principally in the Central
Asian region. The Committee believes that achievement against
these objectives will deliver strong long-term financial
performance and shareholder value on a sustainable basis.
Therefore, in determining the levels of executive reward,
the Committee continues to place emphasis on ensuring a
strong and demonstrable link between actual remuneration
received, and the achievement of Kazakhmys’ strategic and
business objectives.
The Committee is committed to an open and transparent
dialogue with shareholders on the issue of executive
remuneration. During the year, I wrote to a number of
institutional shareholders and shareholder bodies to seek
their views on the remuneration policy to be submitted to
shareholders on 8 May 2014 to provide them with an
opportunity to see the policy at an early stage and provide
feedback. The dialogue was constructive and institutional
shareholders were broadly supportive of the Committee’s
approach on these matters. The Committee considers these
engagements vital to ensure its remuneration strategy
continues to be aligned with the long-term interests of
Kazakhmys’ shareholders.
As set out above, the Policy Report will be subject to a
binding vote and the Annual Report on Remuneration to an
advisory vote at the forthcoming Annual General Meeting, and
I have no hesitation in recommending them to shareholders.
The members of the Committee will be happy to answer any
questions on remuneration matters at the Annual General
Meeting or are available at any other time to discuss feedback
on the remuneration policy and its implementation.
During the year, the Committee has reviewed a number of
aspects of executive Director remuneration structures to ensure
they continue to be aligned with the Group’s strategy, support
the Group’s business objectives and motivate beneficiaries. The
two main focuses of the review were on the annual bonus plan
and the Long Term Incentive Plan:
• To better align the annual bonus plan with the Group’s key
business focus of restructuring the core business and the
delivery of the Group’s major projects at Bozshakol and
Aktogay, from 2014 the number of discrete elements was
reduced from four to three: operational performance,
financial performance and strategic developments, which
will incorporate both project execution and restructuring.
The first two elements will represent 25% each of the
maximum bonus potential and the strategic developments
element 50% of the maximum bonus potential.
www.kazakhmys.com
27
Bozshakol
Site inspection of construction of the primary crusher.
Directors’
Report
Operating Review
Financial Review
Principal Risks
30
38
48
53
Directors’ Report
Operating Review
due to depletion. With the Group’s focus on improving the Region’s
cash flow, ore output from the lower grade sections of the West,
South and Stepnoy mines declined in the second half of 2013.
Review of
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Kazakhmys Mining Production Summary
Copper production
kt (unless otherwise stated)
Ore output1
Copper grade (%)
Copper in concentrate from own
production
Copper cathode equivalent from own
concentrate
Cathode2
Concentrate3
Copper rod production
1
2013
2012
39,191
0.99
37,507
0.95
314.6
303.7
294.0
262.5
31.5
12.1
292.2
292.2
–
23.9
Excludes output from the Central Mukur gold mine in 2012 and
Bozymchak mine in 2013.
2
Includes cathode converted into rod, excluding tolling.
3
Copper cathode equivalent of copper in concentrate sold.
Ore output from Kazakhmys Mining’s 16 operating mines increased
to 39.2 MT in 2013, 4% above the prior year. Whilst ore production
volumes rose in 2013, the focus remained on profitable production
across the Division’s three regions, in particular the Zhezkazgan
Region, which is reflected in the increase in ore grade.
Ore extraction in the Central Region rose significantly in 2013 as the
Konyrat open pit mine, which was re-started in June 2012, operated
for a full year. The West Nurkazgan underground mine increased
output after reconstruction works to increase the capacity of the
main ore transportation conveyor were completed in June 2013.
Output recommenced at the Abyz open pit mine in August 2013
after extraction had been suspended in January 2013 for stripping
works to extend the mine’s operational life until 2017. During the
year, 640 kt of ore extracted from Akbastau mine was stockpiled,
containing approximately 8 kt of copper (2012: 6 kt), which is
unlikely to be processed in the near future.
In the Zhezkazgan Region, ore output declined by 3% with a
reduction in production from the Annensky mine, as operations
at some sections of the mine were suspended in July 2012
30
Ore output from the East Region was 8% lower than in the
prior year. The decline in production from the Region reflected
delays with backfilling works and equipment maintenance at the
Artemyevsky mine. The prior year also included output from the
Nikolayevsky mine before its suspension in the third quarter of
2012, as challenging operating conditions rendered the mine
uneconomic. The Orlovsky mine, the Division’s largest mine by
copper metal in ore extracted, maintained ore output at 1.6 MT
and as mining moved to higher grade sections, the average copper
grade rose to 3.45% up from 3.04% in 2012.
During 2013, the average copper grade of ore extracted by
Kazakhmys Mining increased to 0.99%, driven by the extraction of
higher copper content material at the majority of the mines in the
Zhezkazgan Region with a focus on profitable production. Grades
at the Zhomart mine, the largest producer of copper metal in the
Zhezkazgan Region, fell to 1.11% due to the mining of lower grade
pillars. Grades in the Central Region declined with additional output
from the low grade Konyrat mine partially offset by increased output
and higher grades at the Akbastau mine. East Region’s grades were
above the prior year with the mining of higher content sections of
the Orlovsky mine and the suspension of the lower grade
Nikolayevsky mine in 2012.
Overall, the copper in ore extracted by Kazakhmys Mining was
28.4 kt above the prior year, benefiting from the higher copper
grades in the Zhezkazgan Region and additional metal in ore output
from the Akbastau, Konyrat and West Nurkazgan mines in the
Central Region. Copper in ore output from the East Region fell
with the lower output and grades at the Artemyevsky mine.
Copper in concentrate production increased by 10.9 kt in 2013
to 314.6 kt. Production volumes of copper concentrate benefited
from the additional volumes of copper metal in ore extracted and
processed in 2013. However, this was partially offset by an increase
in stockpiles during the year and a lower contribution from the
reprocessing of waste material at the Balkhash processing facilities.
In the Zhezkazgan Region, as part of the ongoing review of assets,
the Satpayev concentrator was suspended raising utilisation levels at
the other two concentrators in the Region. The Zhezkazgan smelter
was also suspended in the second half of 2013, resulting in the
commencement of concentrate sales mainly to China which totalled
31.5 kt of copper cathode equivalent in 2013. The copper cathode
and silver granule equivalents in the copper concentrate sold are
recognised at recovery rates of 96.5% and 90%, respectively.
Copper cathode equivalent production from own material of
294.0 kt was 1.8 kt above the prior year. The 10.9 kt increase in
copper in concentrate output in 2013 was offset by a large release
of work in progress at the smelters in 2012. In 2013, copper
cathode equivalent production included the release of 7.7 kt
work in progress at the Zhezkazgan smelter.
Copper cathode equivalent production from own material is
anticipated to be between 285 kt and 295 kt in 2014, approximately
40% of which will be from copper concentrate sales.
The output of silver granule and bar, including the silver granule
equivalent volumes in copper concentrate sales, is estimated to
be around 11,000 koz in 2014 due to an expected decline in
silver grades from the mature mines in the Zhezkazgan Region.
The silver granule equivalent volumes in copper concentrate sales
are expected to make up 40% of the total production volumes.
Overall ore extraction volumes and copper grades are expected
to be consistent with 2013 levels. Ore production from the
Zhezkazgan Region is planned to decline with the focus on
improving cash flows in the Region and a further ramp up in
production from the Konyrat and West Nurkazgan mines in
the Central Region is anticipated. The production of copper in
concentrate from the Bozymchak mine is due to commence
in the first half of 2014. The copper concentrate is expected
to be processed into copper cathode at the Balkhash smelter.
Gold production
Gold grade (by-product) (g/t)
Gold own production (by-product)1 (koz)
Copper rod production was below the prior year due to reduced
demand for imported rod products in China and production
volumes are anticipated to be at similar levels in 2014.
Gold grade (primary) (g/t)
Gold doré production (primary) (koz)
Zinc production
2013
2012
3.09
134.1
3.31
151.6
The extraction of zinc metal in ore decreased by 21.1 kt to
213.6 kt in 2013. The decline in zinc metal output was impacted
by the operational issues described previously at the Artemyevsky
mine where zinc grades and ore output declined, partially offset by
higher zinc grades at the Orlovsky mine. During 2013, zinc bearing
ore was stockpiled at the Akbastau mine containing approximately
11 kt of zinc metal which is unlikely to be processed in the
near future.
Zinc in concentrate production was 17.5 kt below the prior year
due to a lower volume of zinc metal extracted and processed during
the year. The decrease in zinc in concentrate output was partially
offset by improved recovery rates at the Nikolayevsky concentrator
in 2013, as the modernisation programme nears completion.
In 2014, zinc in concentrate production is expected to decline to
approximately 120 kt with lower grades expected at the Orlovsky
mine and lower zinc bearing ore volumes from the mature
Yubileyno-Snegirikhinsky mine. It is expected that mining will cease at
Yubileyno-Snegirikhinsky within the next two years due to depletion.
Silver production
koz (unless otherwise stated)
Silver grade (g/t)
Silver own production1,2
Silver granule equivalent in copper
concentrate sold
2013
2012
15.59
12,957
16.78
12,643
1,391
–
1
Includes slimes from purchased concentrate.
2
Includes a small volume of by-product production from the Central Mukur
and Mizek mines.
Silver metal in ore mined in 2013 was 602 koz below the prior
year as lower silver grades in the East Region more than offset
higher ore extraction volumes. Silver bar and granule output
increased by 314 koz in 2013, benefiting from a reduction of
work in progress, compared to an increase in work in progress
during 2012. Following the suspension of the Zhezkazgan smelter,
copper in concentrate containing 1,391 koz of silver granule
equivalent was sold to customers in 2013.
1
2012
0.66
115.9
–
4.6
1.31
13.1
Includes slimes from purchased concentrate.
Gold metal in ore extracted in 2013 was 11.8 koz below the prior
year with operations at the high gold grade Abyz mine suspended
for stripping works in January 2013 before output recommenced in
August 2013. Lower grades and ore extraction at the Artemyevsky
mine also impacted gold metal in ore output in 2013.
Gold bar production (by-product) decreased by 13.0 koz in 2013
when compared to the prior year, reflecting the lower volume of
gold in ore mined, a build-up of ore at the Karagaily concentrator
and a slight increase in work in progress at the Balkhash smelter
at the end of 2013.
Gold doré production from the residual processing of previously
extracted ore from the Central Mukur and Mizek mines is
expected to cease during 2014.
Total gold bar and doré production from the Mining Division
is anticipated to be approximately 125 koz in 2014. This will
include the initial output from the Bozymchak mine which is
due to commence production in the first half of 2014 and the
processing of material stockpiled in 2013.
Support services summary
Kazakhmys Mining operates two coal mines in the Central Region
which supply the majority of their output to the Group’s captive
power stations with the balance sold to external third parties.
In 2013, the coal mines produced 7.6 MT of coal, marginally
ahead of the prior year.
Kazakhmys Mining also owns a rail and road transportation network
to move ore, concentrate and cathodes. The road haulage fleets
operate principally in the East and Karaganda Regions where there
is less railroad infrastructure. The management of railway services
and a number of the road haulage routes are outsourced to third
party suppliers.
www.kazakhmys.com
31
Directors’ Report
Zinc grade (%)
Zinc in concentrate (kt)
2013
0.61
102.9
Directors’ Report
Operating Review continued
Kazakhmys Mining Financial Summary
2013
2012
Sales revenues:
Copper cathodes
Copper rods
Copper concentrate
Zinc concentrate
Silver1
Gold (by-product)
Gold (primary)
Other
3,058
1,973
85
210
143
311
146
6
184
3,362
2,088
187
–
154
414
300
22
197
Average realised price of copper ($/t)2
7,252
8,067
705
1,160
222
174
328
333
1,317
432
885
1,233
624
609
EBITDA (excluding special items)
Net cash costs excluding purchased
Gross cash costs excluding purchased
Capital expenditure3
Sustaining
Expansionary
1
Includes small amount of sales revenue from the Central Mukur and Mizek mines.
2
For sales of copper cathode, rod and copper in concentrate.
3
Capital expenditure in 2012 and 2013 excludes major social projects.
Revenues
Kazakhmys Mining’s revenues were $304 million below the
prior year due to the lower pricing for the Mining Division’s key
commodities and lower volumes of gold sales. The decline in
revenues was partially mitigated by an 11% increase in copper
cathode equivalent sales volumes in 2013.
Revenue from copper products of $2,268 million was consistent
with the prior year as higher copper cathode equivalent sales
volumes offset the decline in realised copper prices. The average
realised price for copper cathode and rod sales fell by 9% to
$7,318 per tonne in 2013. The realised price was below the
average LME cash price for copper in 2013 of $7,328 per tonne,
reflecting the timing of sales during the year.
As a result of the suspension of the Zhezkazgan smelter in
September 2013, copper concentrate produced in the Zhezkazgan
Region was sold directly to customers. The average realised price
for copper in concentrate on a cathode equivalent basis was $6,663
per tonne including refining charges. The revenue from the sale
of copper concentrate is recognised after refining charges are
deducted. The revenue from the silver metal contained in the
copper concentrate is recognised separately.
Copper product sales volumes increased from 282 kt in the prior
year to 312 kt in 2013, with an 18 kt decrease in finished goods
inventory during the year compared to a 10 kt rise in 2012 and
slightly higher production volumes. In 2013 copper in concentrate
sales totalled 31 kt on a cathode equivalent basis.
Revenues from zinc concentrate sales fell by $11 million in 2013 with
a 9% reduction in sales volumes due to lower production. The realised
price for zinc concentrate was marginally above the prior year.
32
Revenues from silver product sales fell by $103 million to
$311 million as pricing on the LBMA exchange for silver declined,
resulting in a 24% fall in the average realised price for silver bar
and granules in 2013 to $23.70 per ounce. Silver product sales
volumes of 13,506 koz in 2013 were slightly above the prior year
as higher production volumes were partially offset by a build-up
of finished goods. Sales volumes included silver in the copper
concentrate sold during 2013 of 1,391 koz on a silver granule
equivalent basis.
Revenues from gold products were significantly below the prior
year with an 84 koz decrease in sales volumes to 109 koz in 2013.
Sales volumes declined with a 22 koz reduction in production
volumes and the sale of 69 koz of gold bar inventory in March 2012,
which had been built-up in the second half of 2011. Gold product
revenues were also impacted by lower pricing for gold on the
LBMA exchange with the average realised price for gold products
falling by 17% to $1,390 per ounce in 2013.
Other revenue includes sales of minor by-products from Kazakhmys
Mining’s operations such as lead and sulphuric acid, along with coal
sales which are made to third parties and the captive power stations.
In 2013, revenue from coal sales to the captive power stations
totalled $55 million.
Kazakhmys Mining’s EBITDA decreased by $455 million, or 39%, to
$705 million in 2013, as revenues declined by $304 million and total
cash operating costs rose by $151 million. While total cash operating
costs increased year on year, in the second half of 2013 costs were
below the comparative period in 2012 and the first half of 2013,
reflecting the benefits of the Group’s ongoing optimisation
programme and asset review.
The Mining Division’s cash cost of goods sold was higher in 2013
as the 4% increase in ore extraction volumes led to a higher usage
of input materials such as explosives, fuel, diesel, tyres and reagents.
Cost inflation for key input materials in 2013 was muted.
Operational employee costs rose in 2013 due to the pay
awards made to staff in April and May 2012. Certain categories of
workers were moved to a collective pay rate consistent across the
Mining Division and the Division’s wage structure was amended to
recognise skills and experience. The impact of these pay awards has
been partly mitigated by the Group’s optimisation programme and
measures to reduce employee costs. These initial actions have seen
a decline in employee numbers and a reduction in working hours
for some staff.
Repair and maintenance expenditure increased in 2013 with the
additional ore volumes processed and inflationary pressures on
the costs associated with maintaining underground mining and
processing equipment.
Processing costs benefited from the closure of the Zhezkazgan
smelter and the Satpayev concentrator. In December 2013, the
Berezovsky concentrator, which processes ore from Irtyshsky mine,
was suspended as part of the ongoing optimisation programme
and asset review.
Utility costs rose as the tariffs charged by the captive power stations
for electricity increased by 23% to reflect market rates instead of
being priced at the cost of generation as in 2012. The increased
tariffs offset the lower electricity usage volumes with the suspension
of the Zhezkazgan smelter and Satpayev concentrator.
Selling and distribution costs were marginally above the prior
year with the higher volumes of copper product sales.
The Mining Division’s administration cash costs were above the
prior year due to the full year effect of pay awards made during
2012 to administration staff to align their wages and salaries with
the local market. The 2012 results also benefited from the release
of a provision following a favourable court ruling in respect of
environmental levies which was divided evenly between cost
of goods sold and administration costs. Social responsibility
costs were consistent with the prior year.
The tenge depreciated against the US dollar during 2013 with
an average rate of 152.13 KZT/$ in 2013 compared to a rate of
149.11 KZT/$ in 2012. The decline in the average value of the tenge
against the US dollar in 2013 reduced the tenge denominated costs
such as labour, local services and utilities when stated in US dollar
terms. On 11 February 2014, the National Bank announced it
would support the tenge at around 185 KZT to the US dollar,
resulting in the devaluation of the tenge.
Cash costs
The gross and net cash cost per unit sold metrics are used as
a measure of the cost efficiency of Kazakhmys Mining’s copper
production operations. The gross and net cash costs calculations
include electricity purchased from the captive power stations at
the cash cost of supply and also include a charge for the smelting
and refining costs which are deducted from the sales price of
copper in concentrate.
The gross cash cost of copper sales was 328 US cents per pound in
2013. While Kazakhmys Mining’s operating cost base grew in 2013,
gross cash costs on a per unit basis were lower than the reported
figure in 2012 with the 11% increase in the copper cathode
equivalent sales volumes.
While the reported gross cash cost per unit sold fell in 2013,
the net cash cost increased from 174 US cents per pound to
222 US cents per pound. The higher net cash cost reflects the
decrease in by-product credits with the lower pricing for silver
and gold products and reduction in zinc in concentrate sales
volumes. The prior period was impacted by the sale of additional
gold volumes including 69 koz of gold inventory which reduced
the net cash cost by 7 US cents per pound.
In 2014, operating costs will benefit from the devaluation of the
tenge on 11 February 2014 against the US dollar which will reduce
tenge denominated costs and from further cost savings from the
Group’s ongoing optimisation programme and asset review. These
factors are expected to offset domestic inflation, an additional
pension tax introduced in 2014, higher refining charges for the
processing of copper concentrate sold to China and the expected
decline in sales volumes which will negatively impact unit costs when
compared to 2013. The gross cash cost of copper sold in 2014 is
anticipated to be between 315 and 330 US cents per pound.
3%
32%
17%
Distribution
Salaries
Transportation
Other production costs
Raw materials
21%
10%
Administration
17%
Capital expenditure
Sustaining
Sustaining capital expenditure totalled $432 million in 2013 with
a number of measures successfully introduced during the year to
optimise spend which was below originally planned levels. Around
$80 million of spend has been carried forward into 2014 due to
the timing of payments.
Capital expenditure included continued investment on several
upgrade projects carried forward from 2012 with spend of
$83 million on non-recurring mine development projects and
concentrator improvements in 2013. The capital expenditure in
the period was applied to the annual mining equipment replacement
programme and to maintaining output at concentrators, smelters,
auxiliary workshops and the transport network.
Investments were made to maintain critical equipment at
processing facilities, in particular the annual overhaul of a furnace
at the Balkhash smelter. Minimal work was conducted at the
Zhezkazgan smelter ahead of its suspension in September 2013.
The reconstruction work of the Nikolayevsky concentrator to
increase its capacity and recovery rates progressed during the
year. Upgrades to the grinding section have been finished and
improvements to the flotation sections are nearly completed.
The majority of the reconstruction project at the concentrator
is planned to be completed by the first half of 2014.
The tailings dam at the Karagaily concentrator, which currently
processes ore from the Abyz and Akbastau mines, is being
expanded to cater for future operations.
The project to recommence operations at the Konyrat mine also
included increasing the capacity of the Balkhash concentrator to
process the additional ore from the mine. Work on the Balkhash
concentrator is expected to be completed by the second quarter
of 2014 after the upgrade of ore loading facilities.
Developments continued at the West Nurkazgan mine to increase
output with the reconstruction of the main conveyor and the
upgrade of infrastructure at the site. Design work to improve the
performance of the concentrator was conducted during the year.
In 2014, the Kazakhmys Mining Division’s sustaining capital expenditure
is expected to be between $350 million and $450 million, including
mine development projects and concentrator improvements which
will require up to $100 million.
Expansionary
In 2013, the Mining Division conducted an extensive review of its
mid-sized projects with the intention of scaling back the Group’s
capital expenditure requirements during the development of the
major growth projects. A number of mine development projects
that were progressing through the study phases have now
been temporarily suspended.
www.kazakhmys.com
33
Directors’ Report
The Group’s net disability benefits obligation increased by
$157 million in 2013 following the assumption of liabilities which
were previously insured due to the insurance companies failing to
make their required payments, and an increase in the number
of claimants. The non-cash components of the disability benefits
obligation of $26 million and the $84 million relating to the
assumption of previously insured payments, are both excluded
from EBITDA (excluding special items). Payments of $52 million
were made during 2013 compared to $41 million in the prior year.
Further details can be found in the Financial Review.
Kazakhmys Mining cash costs
Directors’ Report
The suspended projects include the Akbastau concentrator,
South East Nurkazgan, Anissimov Klyuch, Zhaisan and Zhomart II
development projects, although some project study works
continued in 2013 in order to complete workstreams.
During 2013, technical studies continued on the project to extend
the operational life of the Artemyevsky mine. Exploration data on
the deposit was analysed and geotechnical and hydrogeological
studies also progressed during the year. Further studies and some
initial shafting work will be conducted in 2014, with the feasibility
study for the project due to be completed in 2015.
In 2014, the Kazakhmys Mining Division’s expansionary capital
expenditure, excluding Bozymchak, Aktogay and Bozshakol,
is expected to be up to $30 million.
Bozymchak
The Bozymchak gold-copper deposit which is located in Kyrgyzstan
is at the commissioning phase. The mine’s initial operation will be
as an open pit with 1 MT of ore extraction per year. Bozymchak
is expected to have an average annual output of 7 kt of copper
in concentrate and 35 koz of gold in concentrate over the life
of the mine.
The stripping works and the development of the infrastructure
required for the project to commence operation continued during
the year. Infrastructure such as maintenance workshops, electricity
lines, along with administration and accommodation facilities were
either close to completion or completed.
The concentrator is now at the commissioning stage and operational
crews have been preparing the concentrator with contractors ahead
of its commencement and ramp up in 2014. The initial section of the
mine’s tailing dam has been completed and work will continue on
the remaining sections throughout 2014.
significant construction projects with experience in Kazakhstan
and will be focused on providing additional resource to complete
the construction and commissioning of the processing plant.
Engineering design work for the concentrator and infrastructure
progressed during the year and the majority of the work has been
completed. The main process building at Bozshakol has been
enclosed for the winter season after the erection of steelwork
and cladding was completed in 2013. The three major mills for
the processing of ore were delivered to site on time.
Good progress was made during the year on supporting
infrastructure for the concentrator and mine with earthworks on
the tailings dam, construction of the main concentrator building and
other processing facilities progressing. Significant developments were
made on the installation of the permanent camp for workers during
the year. Earthworks for the clay plant have also commenced ahead
of its construction in 2014.
In 2014, the construction of the mine maintenance workshop
and truck shop are expected to be completed and pre-production
mining is planned to commence. The project is forecast to require
capital expenditure of between $750 million and $950 million
in 2014.
Aktogay
The Aktogay copper ore deposit is the Group’s second major
growth project which commenced development after the Bozshakol
project. The project will include an open pit mine and an on-site
concentrator. The development is being primarily funded by a
$1.5 billion project specific financing facility signed with the
China Development Bank in December 2011.
The first copper and gold concentrate production from the project
is expected in the first half of 2014. The project is forecast to
require capital expenditure of around $60 million in 2014 to
complete the commissioning works.
The deposit is located in the east of Kazakhstan and has a measured
and indicated oxide resource of 121 MT of ore with a 0.37% copper
grade, and a sulphide resource of 1,597 MT of ore with a 0.33%
copper grade. The deposit also contains some molybdenum
by-product. The project benefits from the infrastructure which
has been developed at the site with a power transmission line,
railway access and camp accommodation already in place.
Bozshakol
The Bozshakol sulphide ore deposit is located in the north of
Kazakhstan and is a major growth project for Kazakhmys Mining.
The first copper concentrate from Bozshakol is expected to be
produced in 2015.
The project will initially develop the deposit’s oxide resource which
is located above the sulphide ore body. The detailed engineering on
the SX-EW plant has substantially been completed and construction
of the leach pad commenced during the year. The first production
from the oxide deposit is expected in 2015.
The development of the mine, concentrator and infrastructure is
expected to cost around $2.2 billion. The project is being funded
from the $2.7 billion facility obtained in 2010 from the China
Development Bank and Samruk-Kazyna.
The development of the sulphide plant has been delayed by a year
with the first ore due to be processed at the concentrator in 2017.
Average annual output will be 72 kt of copper cathode equivalent
during a mine life of over 50 years. Copper cathode equivalent
production will average around 100 kt per annum for the first
10 years after the sulphide plant commences operation.
The deposit has a JORC resource of 1,173 MT of ore at a copper
grade of 0.35% and a production life of over 40 years, including the
processing of stockpiled ore for four years. A 25 MT per annum
concentrator is being constructed, producing an average of 87 kt of
copper in concentrate per annum for the first 15 years, with gold,
silver and molybdenum as by-products. A 5 MT per annum clay
plant will also operate in addition to the concentrator, contributing
a further 16 kt of copper in concentrate per annum in the initial
years of its operation.
During 2013, due to concerns over the progress of the project,
Non Ferrous China was appointed as a second principal contractor
at Bozshakol. Non Ferrous China has a strong track record in
34
To ensure the successful delivery of the Aktogay project the
principal contractor will be replaced with several smaller
contractors in 2014. This has the added advantage of increasing
the amount of local content in the project. The overall project costs
are likely to change and an update will be provided once the tenders
are completed. In 2014, work will continue on developing the
infrastructure required to support the mine’s operations including
water, railway and electricity supply. Bulk earthworks at the site
are also expected to recommence in spring 2014. The project is
forecast to require capital expenditure of between $450 million
and $650 million in 2014.
Captive Power Stations
Review of
.D]DNKP\V3RZHU
Net power generated (GWh)
Net dependable capacity (MW)
Ekibastuz GRES-1 currently has a generation capacity of 3,000 MW
and a modernisation programme is in progress to return the power
station to its nameplate capacity of 4,000 MW. The electricity
generated by Ekibastuz GRES-1 is sold to third parties predominantly
based in Kazakhstan, with the remaining output exported to Russia.
The Group’s three captive heat and power stations are located in
Karaganda, Balkhash and Zhezkazgan. The power stations mainly
support the Group’s mining operations, although around 40% of
the net power they generated in 2013 was sold to third parties.
The captive power stations had an average combined nameplate
capacity of 993 MW in 2013.
Kazakhmys Power Production Summary
Ekibastuz GRES-1
1
2013
2012
12,785
14,368
5,862
2,608
7,184
2,287
Based on the Group’s 50% non-controlling interest in Ekibastuz GRES-1
until 5 December 2013 when the Group’s investment was classified as an
asset held for sale. Generation volumes after 5 December 2013 have not
been attributed to Kazakhmys.
The net power generated at Ekibastuz GRES-1 in 2013 was
11% below the prior year at 12,785 GWh. The decline in net
generation volumes was due to lower demand with a 2% decrease
in electricity consumption in Kazakhstan compared to the prior
year. Competition from domestic power stations also impacted
generation volumes, as local producers supplied electricity at
relatively low tariffs to maintain their sales volumes. The decline
in Ekibastuz GRES-1’s domestic sales volumes was partially offset
by a 1,680 GWh increase in sales volumes exported to Russia.
The net dependable capacity of Ekibastuz GRES-1 increased by
321 MW in 2013 mainly due to the commissioning of Unit 8 in
the fourth quarter of 2012. The optimisation and modernisation
programme also continued at the power station and two ESPs
were installed during the year, thereby reducing emissions and
also raising the station’s net dependable capacity.
The net dependable capacity of the captive power stations was
marginally below the prior year as a turbine at the Balkhash heat and
power station reached the end of its operational life in April 2013.
In 2014, generation volumes are expected to be slightly below the
levels in 2013 as turbine replacements and other capital works are
conducted to extend the operating lives and further improve the
operating efficiency of the power stations.
Kazakhmys Power Financial Summary
The financial results for Ekibastuz GRES-1 and the captive power
stations are discussed separately below. Equity accounting of
Ekibastuz GRES-1’s earnings in the Group’s consolidated financial
statements ceased from 5 December 2013 following the agreement
to sell the Group’s 50% interest in the power station to SamrukEnergo. Therefore, the results for 2013 set out below only include
Ekibastuz GRES-1’s operational activities up to 5 December 2013.
Ekibastuz GRES-1
2013
2012
Sales revenues1
248
290
Average tariff price (KZT/kWh)
Domestic sales
Export sales
6.44
6.88
4.59
6.01
6.11
4.30
Average cash cost (KZT/kWh)
2.49
2.03
EBITDA (excluding special items)1
153
189
Sustaining
Expansionary
154
63
91
162
90
72
1
Represents 50% of Ekibastuz GRES-1’s results for the year ended
31 December 2012 and for the period until 5 December 2013.
Revenues
Electricity revenues attributable to Kazakhmys in 2013 were
14% below the prior year partly because revenues in 2013 are
only included until 5 December 2013 whereas the prior year
revenues included 12 months.
Revenues generated by Ekibastuz GRES-1 in 2013 were also lower
due to the challenging domestic electricity market. Sales volumes
declined by 11%, driven by a reduction in domestic demand and
increased competition from local producers, resulting in domestic
sales falling by 24%. To partially offset the decline in local demand,
Ekibastuz GRES-1 more than doubled the electricity volumes
exported to Russia.
www.kazakhmys.com
35
Directors’ Report
In December 2013, Kazakhmys announced that it had entered
into an agreement to sell its interest in Ekibastuz GRES-1 to
Samruk-Energo. The transaction was approved by shareholders
on 7 January 2014 and it is expected that the transaction will
complete in the first half of 2014, subject to customary
regulatory approvals.
Net power generated
Net power generated attributable to
Kazakhmys1
Net dependable capacity (MW)
2012
5,562
854
The net power generation from the Group’s three captive heat and
power stations in 2013 was 3% above the prior year. Generation
volumes benefited from improved equipment performance and
an increase in availability following the enhancements made to the
maintenance programmes at the power stations. Generation volumes
from the power stations remain close to their maximum capacity.
.D]DNKP\V3RZHULQFOXGHVWKH*URXSȇV
three captive heat and power stations and
(NLEDVWX]*5(6LQZKLFK.D]DNKP\VKDV
DLQWHUHVW
GWh (unless otherwise stated)
2013
5,723
843
Directors’ Report
The reduction in Ekibastuz GRES-1’s electricity sales volumes was
partially offset by a 7% increase in the weighted average realised
tariff. The ceiling tariff applicable for domestic sales rose to
7.30 KZT/kWh in 2013, a 12% increase from the ceiling tariff
applicable for the majority of 2012 of 6.50 KZT/kWh. The tariffs
for export sales to Russia were also higher than in the prior year
with an increase in market prices in Russia, but remain below the
domestic tariff.
Ekibastuz GRES-1’s EBITDA attributable to Kazakhmys was 19%
below the prior year as the 2013 results only included operations
up to 5 December 2013 and the profitability of the power station
declined with lower revenues and higher operating costs.
Total cash operating costs at Ekibastuz GRES-1 rose by 10% in 2013
as inflation increased the costs of inputs used in power generation.
Fixed costs also increased with the growth in the power station’s
generation capacity as Unit 8 operated for a full year in 2013 after
it was re-commissioned in the last quarter of 2012.
Expenditure on coal, which comprises around 45% of Ekibastuz
GRES-1’s cash costs, was consistent with the prior year as prices
charged by suppliers increased by around 10% which offset the
reduced consumption due to the lower generation volumes.
Employee costs rose with inflationary pay awards made during 2013.
Staff numbers also increased to cater for the growth in the power
station’s production capacity, with Unit 8 operational throughout
2013 and Unit 2 planned to commence in 2014.
Ekibastuz GRES-1’s maintenance programme expanded compared
to the prior year increasing repair costs. The regulatory authorities
also raised tariffs on emissions, water usage and distribution charges.
Cash cost
The average cash operating costs per kWh of electricity sold at
Ekibastuz GRES-1 increased by 23% in 2013. The growth in the
average cash operating costs was partially due to lower sales volumes
on a higher fixed cost base and also reflected the impact of inflation,
in particular on coal prices.
Capital expenditure
Sustaining
Ekibastuz GRES-1 runs a cyclical maintenance programme for the
six 500 MW units operating at the power station to extend each
unit’s operating life. As part of this programme, major capital repair
work on the boiler and auxiliary equipment at Unit 3 was conducted
in conjunction with the installation of a new ESP in 2013. The
second phase of the major overhaul of Unit 7 was also completed
in November 2013.
Work was performed to enhance infrastructure at the power
station with the reconstruction of the switchyard which integrates
Ekibastuz GRES-1 with the Kazakhstan power network, upgrade
works to the station’s ash disposal system and also the water
treatment facilities.
36
Expansionary
Ekibastuz GRES-1 has been undergoing a major expansion
programme to restore the power station to its nameplate
capacity of 4,000 MW. This programme continued during 2013
with work progressing on the rehabilitation of Unit 2. During
the year, dismantling works on the turbine, auxiliary equipment
and generator took place and some of the new equipment was
received. The rehabilitation of the unit remains on schedule to
complete in late 2014.
Ekibastuz GRES-1 is proceeding with the rehabilitation of the final
dormant unit, Unit 1. The project’s design documents have been
developed and dismantling work continued during the year.
The unit is planned to be operational in late 2016.
To improve the environmental footprint of the power station,
Ekibastuz GRES-1 has been installing ESPs to the plant’s generators
to reduce ash emissions to international benchmark standards.
Under this programme of work, ESPs were installed at Units 3
and 7 during the year. All the operating units at Ekibastuz GRES-1
now have ESPs installed, significantly improving the environmental
footprint of the power station.
2013
2012
Sales revenues
Electricity generation
Heat and other
223
192
31
169
154
15
Average realised electricity tariff price
(KZT/kWh)
Third party sales
Intercompany sales
5.10
5.10
5.10
4.19
4.23
4.16
Average cash cost (KZT/kWh)
3.57
3.33
48
19
Capital expenditure (sustaining)
67
47
Revenues
Revenues from the sale of electricity and heat to Kazakhmys Mining
and to third parties by the captive power stations rose by 32% in
2013. Electricity revenues grew by $38 million mainly as the ceiling
tariff for the captive power stations increased 12% from 4.55
KZT/kWh in 2012 to 5.10 KZT/kWh in 2013 leading to a rise
in the average realised tariff. Heat revenue also benefited from
an increase in approved tariffs in 2013.
Electricity sales volumes were marginally higher than the prior year
as generation at the captive power stations remained close to
capacity. The suspension of the Zhezkazgan smelter and Satpayev
concentrator in the second half of 2013 led to a decrease in the
consumption of electricity at Kazakhmys Mining. This enabled the
captive power stations to increase external sales in 2013 by 13%,
to 2,366 GWh.
The captive power stations’ EBITDA increased by $29 million to
$48 million with higher revenues partially mitigated by an increase
in cash operating costs.
2WKHUEXVLQHVVHV
Cash operating costs at the captive power stations increased in
2013 by $25 million as expenditure on repairs and maintenance
rose to maintain and improve operational efficiency. The 2013
results also include a provision for bad debts mainly related to
supplies of heating. In the prior year, the provision for bad debts
was recognised within Kazakhmys Mining’s results as the receivables
were recorded prior to the separation of the captive power stations
in late 2012.
MKM is based in Germany and produces copper and copper alloy
semi-finished products. The Group disposed of its 100% holding in
MKM on 28 May 2013 for €42 million, including €12 million on a
deferred basis. Kazakhmys also received a dividend of €10 million
from MKM in April 2013. MKM is treated as a discontinued
operation in the Group’s financial statements.
$ million
EBITDA (excluding special items)1
Sustaining
Expansionary
1
Employee costs were above the prior year with some pay awards
made in 2012. Regulatory authorities raised tariffs on distribution
charges which increased operational costs, while administration
costs were consistent with the prior year.
Cash costs
The average cash operating costs per kWh of electricity sold from
the captive power stations rose by 7% to 3.57 KZT/kWh compared
to 3.33 KZT/kWh in 2012. The change in the average cost of
electricity generation is mainly due to the additional repair and
maintenance works conducted in 2013.
The relatively high cash cost per kWh of the captive power stations
compared to Ekibastuz GRES-1 reflects the smaller size of the
Balkhash and Zhezkazgan power stations, and the age of the
equipment employed at these captive power stations.
Capital expenditure
Capital expenditure of $67 million was invested into the
modernisation and replacement of the existing boilers and turbines
along with the upgrade of infrastructure at the captive power
stations, in order to sustain their existing capacity.
A turbine replacement programme is underway with projects
to install new turbines at the captive power stations. Dismantling
works took place during the year at the Zhezkazgan heat and power
station ahead of the installation of two new turbines in 2014 with
a combined capacity of 67 MW. The project to transfer a turbine
from the Zhezkazgan heat and power station to the Balkhash heat
and power station also progressed during the year.
In 2014, capital expenditure is expected to be between
$60 million and $80 million.
2013
(2)
9
9
–
2012
48
11
9
2
The results for MKM in 2013 are shown for the period until the date of MKM’s
disposal on 28 May 2013.
EBITDA was negative $2 million for the period to 28 May 2013
reflecting the IFRS inventory adjustment due to copper price
movements which had a negative impact on EBITDA. In the prior
year, MKM recorded a positive IFRS inventory adjustment.
Capital expenditure
Capital expenditure in the period to 28 May 2013 totalled $9 million
as MKM invested mainly to maintain production equipment.
Review of ENRC
ENRC is a diversified natural resources group with significant
operations in Kazakhstan and Africa. The Group disposed of its 26%
interest in ENRC on 8 November 2013. As consideration for its
holding in ENRC, the Group received net cash proceeds of $875
million and approximately 77 million ordinary shares in Kazakhmys,
which have subsequently been cancelled.
ENRC EBITDA (excluding special items)
$ million
2013
2012
Kazakhmys’ share of EBITDA
(excluding special items) of ENRC1
276
548
1
Kazakhmys’ share of EBITDA (excluding special items) of ENRC is for the period
to 24 June 2013 based on the ENRC’s unaudited interim results for the six months
to 30 June 2013.
ENRC is treated as an asset held for sale from 24 June 2013
and a discontinued operation in the Group’s financial statements.
Kazakhmys’ share of ENRC’s EBITDA (excluding special items) in
2013 of $276 million is for the period to 24 June 2013 compared
to a full year contribution in 2012.
Kazakhmys’ share of ENRC’s EBITDA in 2013 was also below the
prior year, as ENRC’s profitability in the first half of 2013 when
compared to the corresponding period in 2012 was impacted by
lower contributions from the Ferroalloys, Alumina and Aluminium
and Energy Divisions. ENRC’s revenues were $37 million lower
in the first half of 2013 as higher sales volumes across all Divisions,
except for the Iron Ore Division, reduced the impact of the lower
realised prices obtained for key products such as ferroalloys.
Operating cash costs were also higher than the comparative period
in the prior year with the growth in sales volumes, an increase in
wage rates and higher corporate costs in the first half of 2013.
www.kazakhmys.com
37
Directors’ Report
Coal and mazut costs, which make up around 50% of the captive
power stations’ cost base, were marginally lower in 2013, mainly
due to improved efficiency of the operations. The coal is sourced
predominantly from the Mining Division at cost.
Review of MKM
Directors’ Report
Financial Review
Basis of preparation
The financial information has been prepared in accordance with
IFRSs as adopted by the EU using accounting policies consistent
with those adopted in the consolidated financial statements for
the year ended 31 December 2012, except for the first-time
adoption of IAS 19 (revised) ‘Employee benefits’ with effect
from 1 January 2013. This has not had a material impact on the
financial position or performance of the Group. Consequently,
no adjustment has been made to the comparative financial
information as at 31 December 2012.
As explained in note 10 of the consolidated financial statements and
in the ‘Discontinued operations’ section of this Financial Review, the
following businesses have been treated as discontinued operations
for the year ended 31 December 2013: MKM, to the date of its
disposal on 28 May 2013, the Group’s joint venture investment
in Ekibastuz GRES-1 to the date the Group accepted an offer for
its sale on 5 December 2013 and the Group’s investment in ENRC
to the date the Group accepted an offer for its sale on 24 June 2013.
The income statement prior year comparatives have been restated
to conform to this presentation.
Income statement
An analysis of the consolidated income statement is shown below:
Continuing operations
Revenues
Operating costs (excluding non-cash component of the disability benefits obligation, depreciation, depletion,
amortisation, MET and special items)
Segmental EBITDA (excluding special items) from continuing operations
Special items:
Less: additional disability benefits obligation related to previously insured employees
Less: impairment charges
Less: loss on disposal of assets
Less: MET
Less: non-cash component of the disability benefits obligation
Less: depreciation, depletion and amortisation
(Loss)/profit before finance items and taxation
Net finance costs
(Loss)/profit before taxation
Income tax expense
(Loss)/profit for the year from continuing operations
Discontinued operations
Loss for the year from discontinued operations
Loss for the year
Non-controlling interests
Loss attributable to equity holders of the Company
EPS – basic and diluted ($)
From continuing operations
From discontinued operations
Revenues
The Group’s revenues of $3,099 million were 8% below the
$3,353 million achieved in the year ended 31 December 2012.
Copper revenues were in line with 2012 as higher copper cathode
equivalent sales volumes compensated for lower realised prices
following an 8% fall in the average LME price. The higher copper
cathode equivalent sales volumes were attributable to a rise in
production volumes as well as a reduction in finished goods
inventory. The decline in total revenues was due to a fall in
by-product revenues, particularly gold, which in 2012 benefited
from the sale of inventory accumulated in the second half of 2011.
Realised prices for both gold and silver by-products declined.
38
2013
2012
3,099
3,353
(2,377)
722
(2,226)
1,127
(84)
(670)
(14)
(242)
(26)
(288)
(602)
(79)
(681)
(127)
(808)
–
(192)
(8)
(260)
(149)
(276)
242
(91)
151
(86)
65
(1,224)
(2,032)
2
(2,030)
(2,335)
(2,270)
(1)
(2,271)
(1.57)
(2.39)
(3.96)
0.12
(4.45)
(4.33)
0.04
0.33
0.37
0.36
0.58
0.94
by operating segment
EBITDA (excluding special items) has been chosen as the key
measure in assessing the underlying trading performance of the
Group. This performance measure removes the non-cash
component of the disability benefits obligation, depreciation,
depletion, amortisation, MET and those items which are nonrecurring or variable in nature and which do not impact the
underlying trading performance of the Group. As EBITDA is
considered to be a proxy for cash earnings from current trading
performance, the actuarial remeasurement charge recognised
in the income statement in respect of the Group’s disability
benefits obligation has been excluded from EBITDA and instead,
the actual disability benefits payments disbursed during the year
have been deducted in arriving at EBITDA. The Directors also
believe that the exclusion of MET provides a more informed
measure of the operational profitability of the Group given the
nature of the tax as further explained in the ‘Taxation’ section.
equity accounting for this shortened period compared to a full
year in 2012, lower sales volumes and higher operating costs.
The Group’s 26% share of EBITDA (excluding special items)
of ENRC of $276 million to 24 June 2013 represented a decline
of $272 million compared to the share of EBITDA for the full
year in 2012.
Group EBITDA (excluding special items) ($ million)
Breakdown of Group EBITDA (excluding
special items) ($ million)
1,149
13
13
1,912
12
12
2,925
11
09
1,634
A reconciliation of Group EBITDA (excluding special items)
by operating segment is shown below:
Kazakhmys Mining
Kazakhmys Power1
Corporate Services
Total continuing operations
MKM
Share of EBITDA of joint venture2
Segmental EBITDA
(excluding special items)
Share of EBITDA of associate3
Total discontinued operations
Group EBITDA
201
276
1,160
208
548
Other
Kazakhmys Power
Special items
2013
2012
705
48
(31)
722
1,160
19
(52)
1,127
(2)
153
48
189
873
276
427
1,364
548
785
1,149
1,912
1
Kazakhmys Power in continuing operations comprises the Group’s captive
power stations.
2
The share of EBITDA of joint venture relating to Ekibastuz GRES-1 up to
5 December 2013, the date on which the Group accepted an offer for its sale
and ceased equity accounting, and for the year ended 31 December 2012,
is classified within discontinued operations.
3
The share of EBITDA of associate relating to ENRC up to 24 June 2013, the date
on which the Group accepted an offer for its sale and ceased equity accounting and
for the year ended 31 December 2012, is classified within discontinued operations.
The share of EBITDA (excluding special items) of ENRC excludes MET of ENRC.
Segmental EBITDA (excluding special items) from continuing
operations of $722 million was 36% lower than the prior year,
principally as the decline in revenues and higher operating costs
driven by inflationary pressures on input costs led to a fall in the
EBITDA contribution from Kazakhmys Mining.
The EBITDA contribution of Kazakhmys Power increased to
$48 million from $19 million in 2012 due to a growth in revenues,
benefiting from higher ceiling tariffs.
EBITDA (excluding special items) from discontinued operations
decreased compared to the prior year. MKM’s contribution for
the period to 28 May 2013, the date on which it was sold, was
a loss as declining copper prices led to a negative IFRS inventory
adjustment in cost of sales compared to a positive adjustment in
2012. The Group’s 50% share of EBITDA of Ekibastuz GRES-1 to
5 December 2013 has fallen by 19% to $153 million, affected by
Directors’ Report
$ million
705
(4)
Kazakhmys Mining
Share of EBITDA of associate
2,835
10
(33)
Special items are non-recurring or variable in nature and do not
impact the underlying trading of the Group. The principal special
items within continuing operations are:
Special items within (loss)/profit before finance items
and taxation:
2013
Impairment charges
In light of the decline in the price of commodities produced by the
Group and inflationary pressures on operating costs, the Group
commenced an optimisation programme and asset review which
has resulted in operating cost and capital expenditure savings.
The asset review has considered the results of the optimisation
programme to date, and the potential for future cost savings, when
assessing the future economic outlook for assets. The prospects
for the Zhezkazgan Region, a cash generating unit within the Mining
Division, are considered challenging. The recoverable amount of the
Zhezkazgan Region cash generating unit is believed by management
to be significantly lower than its carrying value such that the Region
has been fully impaired and an impairment charge has been
recognised as follows:
• $477 million against total assets in the Region, comprising
$325 million against property, plant and equipment, $139 million
against mining assets and $13 million against long-term advances.
The asset review also resulted in certain production assets and
medium-sized projects being suspended or subject to a change in
intended use. The following impairments against specific assets have
been recognised:
• $119 million against assets in the Zhezkazgan Region,
comprising $115 million against property, plant and equipment,
primarily relating to the Satpayev concentrator, which was
suspended in June 2013, and the Zhezkazgan smelter, which
was suspended in the second half of 2013, and $4 million
against specialised consumables;
• $61 million against medium-sized projects which were
suspended; and
• $13 million against other assets, including the Berezovsky
concentrator in the East Region, which was suspended
in the second half of 2013.
The total impairment charges treated as special items for the
year ended 31 December 2013 were $670 million.
www.kazakhmys.com
39
Directors’ Report
Financial Review continued
Loss on disposal of assets
During 2013, the Group disposed of various assets for proceeds
of $38 million, on which a loss of $14 million was realised.
Disability benefits obligation
In accordance with Kazakhstan law, the Group obtained insurance
cover from 2005 for the disability payments to employees for illness
and disability sustained at the Group’s operations. During 2013, as a
result of financial difficulties, the insurance companies ceased making
their obligated payments to the employees covered by insurance
contracts. The Group has assumed the liability for future disability
benefit payments to these employees and the related $84 million
charge has been treated as a special item in the income statement.
Further details of the disability benefits obligation are given in the
‘Balance Sheet’ section of this review.
2012
Impairment charges
The following impairment charges were recognised in 2012:
• a charge of $162 million in respect of the Bozymchak
gold/copper project in Kyrgyzstan. As a result of operational
challenges experienced in Kyrgyzstan the project is expected
to commence production later than originally envisaged,
capital costs were revised upwards and the risks associated
with the project’s execution were re-assessed. Following the
impairment charge, which consisted of $71 million against
mining assets and $91 million against property, plant and
equipment, the Bozymchak project was recognised at its
recoverable amount of $106 million as at 31 December 2012.
Of the total Bozymchak impairment, $19 million related to
the impairment of capitalised borrowing costs;
• within mining assets, a charge of $7 million relating to the
Nikolayevsky mine which was suspended in August 2012 as it
was no longer considered economically viable to operate this
mine; and
• a charge of $11 million against property, plant and equipment
relating to transportation infrastructure owned by the Group
following a change in the intended use of the assets and a
re-assessment of their future cash flows.
Loss on disposal of subsidiary
In 2012, Kazakhmys Mining sold a subsidiary in Kazakhstan
and recognised a loss on disposal of $8 million.
Total special items within (loss)/profit before finance items
and taxation for continuing operations in 2013 amounted to
$768 million compared to $200 million in 2012. Special items within
loss before finance items and taxation in respect of discontinued
operations of $551 million (2012: $30 million) relate to the losses
on disposal of the Group’s investment in ENRC and MKM and the
impairment charge recognised to reduce MKM’s carrying value to
the net sales proceeds. Further details are given in the
‘Discontinued operations’ section.
40
Net finance expenses
Finance expenses from continuing operations for the year,
including foreign exchange movements, interest on employee
benefits obligations and the discount on the unwinding of long-term
provisions, were $79 million compared to $91 million in the prior
year. The finance costs incurred on borrowings decreased to
$51 million from $79 million in 2012, as $126 million of the total
$177 million interest charged on the Group’s borrowings was
capitalised to the development projects, Bozshakol, Bozymchak
and Aktogay, an increase of $87 million over the costs capitalised in
2012. The level of capitalised costs has risen due to higher interest
charges on larger outstanding principal balances.
The decrease in finance costs incurred on borrowings was partially
offset by an $11 million increase in the interest charged on the
employee benefits obligation, as a higher discount rate was applied
to a larger obligation.
Taxation
The table below shows the Group’s effective tax rate as well as the
all-in effective tax rate which takes into account the impact of MET
and removes the effect of special items and non-recurring items
on the Group’s tax charge.
(Loss)/profit before taxation from
continuing operations
Add: MET
Add: special items
Adjusted profit before taxation
from continuing operations
Income tax expense
Add: MET
Add: deferred tax asset on additional
disability benefits obligation related to
previously insured employees
Less: impairment of deferred tax assets
recognised in the Zhezkazgan Region
Add: refund of past EPT payments
Add: recognition of a deferred tax asset
resulting from impairment charges
Add: deferred tax assets on other special
items
Adjusted tax expense from
Effective tax rate (%)
All-in effective tax rate1 (%)
1
2013
2012
(681)
242
768
151
260
200
329
127
242
611
86
260
17
–
(98)
–
–
60
21
13
2
–
311
(19)
95
419
57
69
The all-in effective tax rate is calculated as the income tax expense plus MET less
the tax effect of special items and other non-recurring items, divided by profit
before taxation, which is adjusted for MET, special items and other non-recurring
items. The all-in effective tax rate is considered to be a more representative tax
rate on the recurring profits of the Group.
Effective tax rate
Despite making a loss before taxation from continuing operations
of $681 million, the Group has incurred a tax charge of
$127 million. This is largely due to the non-deductibility of the
impairment charges recognised during the year, in particular the
$477 million impairment in respect of assets in the Zhezkazgan
Region, which has a $95 million negative impact on the tax charge.
In addition, previously recognised deferred tax assets of $98 million
in the Zhezkazgan Region, primarily related to the employee benefits
obligation, have been impaired. Based on the economic outlook for
the Region it is not expected that sufficient taxable income will be
generated to recover these assets. Other factors affecting the tax
charge and effective tax rate in 2013, such as transfer pricing
provisions, other non-deductible items and unrecognised tax
losses, are discussed below.
All-in effective tax rate
The all-in effective tax rate increased from 69% in 2012 to 95%
in 2013, as MET, which is revenue-based and independent of the
profitability of the operations, was only 7% lower than in 2012,
whilst the adjusted profit before taxation fell by 46%. In 2013, the
MET charge represented 74% of the adjusted profit before taxation
compared to 43% in 2012. The level of non-deductible items, other
than the impairment charge in respect of the Zhezkazgan Region,
is largely unchanged and also represents a higher proportion of the
adjusted profit before taxation in 2013 compared to the prior year.
Excess profits taxation (EPT)
As disclosed in the 2012 Annual Report and Accounts, the Supreme
Court of Kazakhstan ruled in favour of Kazakhmys LLC in relation to
past disputes over the interpretation of the EPT legislation. As part
of this ruling, the Supreme Court also found that Kazakhmys LLC
should not have been an EPT payer in the period from 2006 to
2008 inclusive. Management subsequently submitted a claim for
$108 million to the Ministry of Finance. By 31 December 2012,
$60 million had been reimbursed by set-off against the 2012 tax
year income tax and mineral extraction tax liabilities and was
recognised in the consolidated financial statements as a special item.
The remaining $48 million of the $108 million claim was challenged
by the Ministry of Finance, who believes that this amount relates to
periods beyond the Kazakhstan statute of limitations. The Ministry
of Finance is continuing to pursue legal action over the remaining
$48 million of the $108 million claim. Consequently, management
believes there is sufficient uncertainty over its recoverability such
that a credit has not been recognised in the 2013 income statement.
In addition to the current year charge, the Group released past
transfer pricing provisions of $18 million following confirmation
of the Group’s transfer pricing calculations on by-products by the
tax authorities.
Non-deductible items
The tax impact of non-deductible items, other than the impairment
charge in respect of the Zhezkazgan Region referred to above,
was $50 million in 2013 (2012: $53 million), mainly relating to other
impairment losses and ongoing non-deductible business expenses
at Kazakhmys Mining.
Unrecognised tax losses
The Group has incurred tax losses during the year, primarily related
to certain subsoil use contracts, which are not forecast to generate
sufficient taxable profits to utilise these losses in the foreseeable
future. As a result, deferred tax assets of $27 million (2012:
$16 million) in respect of these losses have not been recognised.
Taxation related special items:
2013
As noted above under ‘Effective tax rate’, previously recognised
deferred tax assets in the Zhezkazgan Region of $98 million have
been impaired. This charge has been treated as a taxation related
special item.
Deferred tax assets have been recognised in respect of certain
impairment charges, treated as special items, where future tax
benefits are expected. The resulting tax credit has been treated
as a taxation related special item.
The additional disability benefits obligation recognised in 2013 of
$203 million, of which $84 million was treated as a special item, is
deductible against taxable profits in the future when the disability
payments are made. As a result, a deferred tax asset was recognised
during the year in respect of the obligation, with $17 million in
respect of the $84 million charge treated as a taxation related
special item. The majority of this deferred tax asset has subsequently
been impaired at year end as part of the $98 million deferred tax
impairment in the Zhezkazgan Region referred to above.
www.kazakhmys.com
41
Directors’ Report
As a result of these factors the effective tax rate was (19)%
compared to 57% in 2012, which benefited from a refund of EPT
of $60 million received during the year. The restatement of the
Group’s income statement following the reclassification of ENRC
and Ekibastuz GRES-1 as discontinued operations has led to a
restatement of the effective tax rate for 2012. Prior to this
reclassification the effective tax rate was (4)%.
Transfer pricing
A provision of $5 million has been recognised as at
31 December 2013 (2012: $6 million) for transfer pricing
exposures. This is principally where external and intercompany
sales contracts entered into during the year resulted in certain of
the Group’s profits being taxed twice in the UK and Kazakhstan
due to inconsistencies between the transfer pricing legislation of
both jurisdictions. Additionally, further transfer pricing exposures
exist on certain sales contracts entered into with European and
Russian customers, which include trading terms that are not fully
acceptable under Kazakhstan transfer pricing legislation.
Directors’ Report
MET
MET is a revenue-based tax and is derived from the volume and
metal content of extracted ore and global commodity prices. During
2013, the impact of lower commodity prices was only partially offset
by an increase in the quantity of metal extracted by Kazakhmys
Mining, leading to a decrease in the MET expense, within cost of
sales, from $260 million in 2012 to $242 million, a reduction of 7%.
2012
As the impairment of the Bozymchak asset in 2012 was treated as
a special item, the related tax impact of this impairment, a deferred
tax credit of $13 million, was also treated as a special item. The
deferred tax credit was recognised at 10%, being the statutory
rate in Kyrgyzstan.
Future tax rates
Future tax rates are materially affected by the application of
corporate income tax (‘CIT’) and MET. The CIT rate in Kazakhstan
is 20% on assessable profits whilst MET is revenue-based and
dependent on copper prices.
Tax charge and cash tax cost ($ million)
286
13
326
13
378
12
341
12
Tax charge
Ekibastuz GRES-1
On 5 December 2013, the Directors accepted an offer from
Samruk-Energo, an investment vehicle of the Government of
Kazakhstan, for the sale of the Group’s 50% joint venture in
Ekibastuz GRES-1 and the Group’s investment in Kazhydrotechenergo
LLP (Kaz Hydro) for a net amount of $1,249 million, after
transaction costs of $2 million and the additional $49 million payable
for the remaining shares held in Kaz Hydro. The offer was approved
by Kazakhmys shareholders on 7 January 2014, with completion
dependent on certain conditions precedent. The share of the
post-tax results of Ekibastuz GRES-1 for the period ended 5
December 2013, the date on which equity accounting ceased,
of $89 million has been included in the 2013 consolidated income
statement. This represents a 29% fall compared to $126 million
reported for the full year of 2012 due to the shortened period,
lower sales volumes and higher operating costs.
Cash tax cost
$ million
MKM
(Loss)/profit before tax excluding
impairment losses
Impairment losses
Loss on disposal
Taxation (charge)/credit
(Loss)/profit for the year
Ekibastuz GRES-1
Share of profits from joint venture
Profit for the year
ENRC
Share of profits/(losses) from associate
Impairment charge against investment in
associate
Loss on disposal
Loss for the year
Kazakhmys Petroleum
Loss on disposal
Loss for the year
Loss for the year from
discontinued operations
42
MKM
MKM was sold on 28 May 2013, for a consideration of €42 million
($55 million), comprising €30 million ($39 million) in cash and
€12 million ($16 million) which is deferred over four years.
The results from MKM include its loss for the period until its
disposal of $4 million, an impairment charge of $22 million to
write MKM down to the net sales proceeds and a $1 million
loss on its disposal. The loss on disposal of MKM arises from
the recycling of the foreign currency translation losses recognised
in the Group’s equity on consolidation of MKM of $2 million.
2013
2012
(2)
(23)
(1)
(1)
(27)
44
(18)
–
7
33
89
89
126
126
65
(258)
(823)
(528)
(1,286)
–
–
(1,224)
(2,223)
–
(2,481)
(13)
(13)
(2,335)
ENRC
On 24 June 2013, the Group accepted the proposed offer from
Eurasian Resources Group B.V. (‘Eurasian Resources’) for its 26%
investment in ENRC, comprising $2.65 in cash plus approximately
0.23 Kazakhmys PLC shares per ENRC share, amounting in total
to $1,194 million net of expenses. An impairment charge of
$823 million was recognised to write the investment down to
this value in the first half of 2013. On 8 November 2013, the
transaction completed and the Group received the net proceeds
of $1,194 million, comprising $875 million in cash and 77,041,147
Kazakhmys PLC shares valued at $319 million. The Group
recognised a loss on disposal of $528 million, mainly representing
the recycling of the Group’s share of ENRC’s reserves which
arose principally from the translation reserve. As well as the
impairment charge and the loss on disposal, the Group’s share of
post-tax results of ENRC of $65 million up to 24 June 2013, the
date on which equity accounting ceased, has been included in the
2013 consolidated income statement. The Group’s share of ENRC’s
post-tax results for the year ended 31 December 2012 was a loss
of $258 million, after an impairment charge of $316 million.
The results from discontinued operations for the year ended
31 December 2012 comprise MKM, Ekibastuz GRES-1 and
ENRC as well as the final completion price adjustment on the
sale of Kazakhmys Petroleum.
Underlying Profit
The reconciliation of Underlying Profit from (loss)/profit attributable
to equity holders of the Company is set out below:
$ million
2013
(806)
2012
64
Earnings per share
84
670
14
–
192
8
(17)
–
98
–
–
(60)
(21)
(13)
(2)
–
20
(1,224)
191
(2,335)
22
17
529
13
823
2,223
42
(13)
1
316
85
7
–
(23)
4
(2)
(14)
–
170
190
301
492
The Group’s net loss attributable to equity holders of the Company
from continuing operations was $806 million for the year ended
31 December 2013, down from a profit of $64 million in the prior
year. Excluding impairment charges and other special items,
Net loss attributable to equity holders of
the Company
Total Underlying Profit
Weighted average number of shares in
issue (million)
2013
(2,030)
190
2012
(2,271)
492
513
524
(1.57)
(2.39)
(3.96)
0.12
(4.45)
(4.33)
0.04
0.33
0.37
0.36
0.58
0.94
Basic earnings per share from continuing and discontinued
operations was a loss of $3.96 per share, compared to a loss of
$4.33 in the prior year. Earnings per share based on Underlying
Profit decreased to $0.37 for the year ended 31 December 2013
from $0.94 in the prior year due to the decrease in Underlying
Profit, as explained above, and the reduction in the weighted
average number of shares in issue in 2013 arising from the
77,041,147 Kazakhmys PLC shares received as part of the
consideration for the ENRC disposal, which were subsequently
cancelled on 8 November 2013. The share buy-back programme
which commenced in September 2011 and completed in May 2012
also contributed to the decrease in the weighted average number
of shares in issue in 2013.
Key financial indicators
The definitions of our key financial indicators are shown in the
Glossary and these measures, on a total Group basis including
continuing and discontinued operations, are set out below:
2013
($ million)
Free Cash Flow ($ million)
Net cash cost of copper after by-product
credits excluding purchased concentrate
(USc/lb)
1,149
0.37
(171)
2012
1,912
0.94
85
222
174
Dividends
The policy established at the time of Listing was for the Company
to maintain a dividend policy which took into account the profitability
of the business and underlying growth in earnings of the Group,
as well as its cash flows and growth requirements. The Directors
would also ensure that dividend cover is prudently maintained.
In previous years, share buy-backs and special dividends have
been used in addition to the ordinary dividend to return surplus
funds to shareholders.
www.kazakhmys.com
43
Directors’ Report
Net (loss)/profit attributable to equity
shareholders of the Company from
Special items:
Additional disability benefits obligation
related to previously insured employees
Impairment charges
Taxation related special items:
Recognition of a deferred tax asset on
additional disability benefits obligation
related to previously insured employees
Impairment of deferred tax assets
recognised in the Zhezkazgan Region
Refund of past EPT payments
Recognition of a deferred tax asset
resulting from impairment charges
Deferred tax assets on other
special items
Underlying Profit from continuing
operations
Net loss attributable to equity
shareholders of the Company from
Special items:
Subsidiary businesses
Impairment charge recognised on
remeasurement to fair value less costs
to sell – MKM
Loss on disposal of subsidiaries and
investment in associate
Impairment charge recognised on
remeasurement to fair value less costs
to sell – ENRC
Associate
Impairment charge recognised
by associate
Onerous contract (utilised)/recognised
Acquisition related transaction costs
Net gain arising from business
combinations
Taxation effect of special items
Release of deferred tax liabilities/(assets)
resulting from the remeasurement
of MKM
Recognition of deferred tax assets on
impairment charges recognised by ENRC
Underlying Profit from
Total Underlying Profit
Underlying Profit for the year was $20 million from continuing
operations compared to $191 million in 2012, due to the
reduced profitability in the Mining Division. Underlying Profit
from discontinued operations was $170 million compared to
$301 million in the prior year and was impacted by the share
of post-tax profits for ENRC in 2013 only being recognised
to 24 June 2013 compared to a full year in 2012.
Directors’ Report
The Company paid dividends of 8.0 US cents per share
($42 million) during the first half of 2013, representing the 2012
final dividend. Taking into consideration the current low level
of cash generation, the ongoing asset review and the Group’s
anticipated increase in net debt during the construction phase
of the two major growth projects, the Directors did not declare
an interim or recommend a final dividend for 2013. The Board
will continue to assess the Group’s financial position, its cash flows
and growth requirements in determining when to resume
dividend payments in the future.
Summary of the year
Net cash flows from operating activities declined following the lower
profitability of the Group coupled with higher interest payments and
no dividends received, which were only partially offset by a higher
working capital inflow over the year. The Group received $902
million from the disposal of ENRC and MKM, net of cash disposed.
On receipt of the $1,249 million net proceeds from the sale of
Ekibastuz GRES-1, expected in the first half of 2014, the Group
would return to a net funds position on a pro forma basis as at
31 December 2013.
In 2013, the Group received 77,041,147 Kazakhmys PLC shares
valued at $319 million as part of the ENRC disposal proceeds,
which were cancelled. In 2012, a share buy-back programme
which had commenced the previous year was completed,
repurchasing 6 million shares at a cost of $88 million.
Dividends received
In 2013, the Group received no dividends from either ENRC
or the Ekibastuz GRES-1 joint venture compared to dividends of
$59 million from ENRC and $28 million from Ekibastuz GRES-1
received in 2012.
Cash flows
A summary of cash flows is shown below:
$ million
Segmental EBITDA before joint
venture and associate
Impairment losses
Non-cash component of the disability
benefits obligation
Loss on disposal of associate, subsidiary
and other assets
Dividends received from associate and
joint venture
Working capital movements1
Interest paid
MET paid
Income tax paid
Foreign exchange and other movements
Net cash flows from operating
activities before other expenditure
associated with major projects
Free Cash Flow
Expansionary and new project capital
expenditure
Non-current VAT receivable associated
with major projects
Major social projects
Interest received
Proceeds from disposal of property,
plant and equipment
Proceeds from disposal of investment
in associate
Proceeds from disposal of subsidiaries,
net of cash disposed
Dividends paid
Purchase of own shares under the
Group’s share buy-back programme
Other movements
Cash flow movement in net debt
1
44
2013
2012
(599)
712
945
220
(26)
(149)
543
23
–
179
(156)
(259)
(67)
(2)
87
64
(85)
(199)
(142)
(17)
325
(496)
(171)
747
(662)
85
(757)
(567)
(44)
(32)
12
(55)
(12)
15
38
51
875
–
27
(42)
3
(121)
–
(9)
(103)
(88)
(22)
(711)
Working capital movements exclude any accruals relating to MET and the
movement in non-current VAT receivable incurred on capital expenditure
relating to the major projects.
Working capital
The working capital movements resulting in the $179 million inflow
in 2013 are explained below:
• inventory levels declined by $145 million, of which $106 million
was from Kazakhmys Mining, $12 million from Kazakhmys
Power and $27 million from MKM. At the end of 2012, there
was a significant volume of goods in transit which was recognised
in 2013 and the Group has been successful in maintaining low
levels of copper finished goods inventory throughout 2013.
The optimisation programme has also resulted in improved
consumables inventory management. MKM’s reduction in
inventory levels reflects the impact of lower commodity
prices on their copper inventory compared to the prior year;
• receivables increased by $185 million due to the timing of cash
receipts and changes in product mix. Copper concentrate sales,
which commenced following the suspension of the Zhezkazgan
smelter, are only settled in full following confirmation of content
and quality. In addition, when comparing December 2013 with
December 2012, a greater proportion of cathode sales were to
China where payment terms under letter of credit are longer
than for sales to Europe. Both these factors have contributed
to the higher receivables balance at 31 December 2013 with a
further $59 million due to seasonal fluctuations at MKM when
comparing May 2013, the month in which the disposal was
completed, with December 2012;
• prepayments and other current assets fell by $31 million
reflecting tight controls over working capital. The reduction
in working capital would have been greater, however, delays in
the tax authorities conducting a VAT audit in the second half
of 2013 has led to an increase in the VAT receivable balance
by $22 million; and
• trade and other payables, employee benefits and provisions
increased by $188 million in 2013, primarily at Kazakhmys
Mining. Of this increase, $138 million related to the disability
benefits obligation, mainly due to the assumption of previously
insured liabilities by the Group and a change in actuarial
assumptions. Trade and other payables also increased by
$44 million due to amounts owed to contractors in respect
of the major projects.
In the prior year, there was a working capital inflow of $64 million.
Overall inventory levels increased by $40 million as the reduction
of 69 koz of gold bar stock produced in 2011 was not sufficient
to offset increases in other finished goods and larger raw material
inventories due to higher input prices. MKM’s inventory levels
rose due to an increase in volume and a higher copper price.
Prepayments and other current assets rose by $177 million in 2012,
of which VAT receivable balances increased by $89 million due
mainly to a delayed VAT refund, which was received in the first half
of 2013. Receivables decreased at Kazakhmys Mining by $52 million,
reflecting lower revenues and the timing of receipts. Trade and
other payables, employee benefits and provisions increased by
$281 million in 2012, of which $168 million related to the
disability benefits obligation and $110 million was due to higher
trade and other payables, principally for auxiliary services and
equipment purchases.
Investing and financing cash flows
Investing and financing cash flows during 2013 related to the
proceeds received from the sale of the investment in ENRC of
$875 million, the net cash proceeds from the disposal of MKM of
$27 million, proceeds from the disposal of various other assets of
$38 million and the payment of the Group’s final dividend for 2012
of $42 million. During 2012, investing and financing cash flows
related to the Group’s share buy-back programme and the payment
of the Group’s final dividend for 2011 and interim dividend for
2012. In addition, during the year the Group disposed of a number
of assets for proceeds of $51 million, principally relating to the sale
of two corporate aeroplanes for a total of $30 million.
Interest cash flows
Interest paid during the year was $156 million, $71 million
above the interest paid in 2012 of $85 million, primarily due
to an increased level of debt outstanding during the year. The
average effective interest rate on debt of 5.1% was consistent
with the prior year.
2
3
MET payments of $259 million were above the income statement
charge of $242 million and are expected to result in reduced
payments in 2014. MET payments in 2012 were reduced by the
$56 million offset from the refund of past EPT payments against
the MET liability.
Free Cash Flow
A higher working capital inflow, lower income tax payments and
reduced sustaining capital expenditure partially offset the impact
of lower earnings, higher interest and MET payments and no
dividends from ENRC or Ekibastuz GRES-1. Free Cash Flow was a
negative $171 million including interest payments of $156 million, a
decline from a positive $85 million Free Cash Flow in the prior year.
Capital expenditure
Capital expenditure on sustaining the current business operations
was reduced to $496 million from $662 million, and expansionary
expenditure rose by $190 million as the Group invested in
Bozshakol, Aktogay and the medium-sized projects. Total capital
expenditure incurred in the year was $1,253 million, compared
to $1,229 million for the year ended 31 December 2012.
Major social projects
In 2013, the Group spent $32 million (2012: $12 million)
as part of the Group’s social development programme on
major projects in Kazakhstan.
1
(599)
712
543
179
4
5
(2)
(26)
6
7
(67)
(156)
8
(259)
9
(496)
10
11
1
2
3
4
5
6
7
8
9
10
11
Directors’ Report
Income taxes and mineral extraction tax
Income tax payments of $67 million were lower than the
$142 million in the prior year, reflecting the fall in the Group’s
profitability. The income tax payments were higher than the income
statement charge for current tax of $44 million, as the Group
continued to make advance payments in 2013 based on prior year
profitability. As a result, the Group’s net tax receivable position at
31 December 2013 of $50 million was higher than the $29 million
as at 31 December 2012.
Reconciliation of Segmental EBITDA
to Free Cash Flow ($ million)
(171)
Segmental EBITDA before joint venture and associate
Impairment losses
Loss on disposal of associate, subsidiary and other assets
Working capital movements
Foreign exchange and other movements
Non-cash component of the disability benefits obligation
Income tax paid
Interest paid
MET paid
Free Cash Flow
Balance sheet
The Group’s capital employed position at 31 December 2013
is shown below:
$ million
Equity attributable to owners of the
Company
Borrowings
Capital employed
2013
2012
4,217
4
3,111
7,332
6,259
6
2,468
8,733
Summary of movements
The Group’s attributable loss for the year, mainly related to
discontinued operations, the share repurchase on the sale of ENRC
of $319 million, a non-cash loss of $94 million mainly recognised in
the foreign currency translation reserve and returns to shareholders
of $42 million during the year have led to a $2,042 million decrease
in equity attributable to holders of the Company to $4,217 million
at 31 December 2013.
www.kazakhmys.com
45
Directors’ Report
Disability benefits obligation
The Group’s disability benefits obligation, which is the largest portion
of the overall employee benefits obligation, has grown substantially
following changes in Kazakhstan legislation which significantly
increased the level of disability payments to be made by companies
to disabled employees. During 2013, the Group also agreed to meet
the future disability payments that were previously insured as the
insurance companies ceased making their obligated payments to the
employees covered by insurance contracts. Following this decision
by the Group, the existing insurance policy to cover the 2013
future disability payments has been included in the disability
benefits obligation net of a corresponding insurance asset for the
insurance premiums.
The net employee benefits obligation at 31 December 2013 was
$530 million compared to $373 million at 31 December 2012, a net
increase of $157 million. The increase is principally attributable to
an income statement charge of $203 million, $27 million recognised
directly in other comprehensive income, offset by cash payments of
$52 million to beneficiaries and $13 million for the plan asset. The
income statement charge comprises the assumption of previously
insured disability payments of $84 million, treated as a special item,
the current service charge of $19 million, interest on the employee
benefits obligation of $26 million and $74 million of actuarial
valuation movements.
ENRC
The Group’s 26% investment in ENRC had a carrying value of
$2,027 million at 31 December 2012. On 8 November 2013,
it was disposed of for net proceeds of $1,194 million. The
movement during the year represents the Group’s share of the
post-tax profits to 8 November 2013 of $65 million, which was
offset by the Group’s share of losses recognised in equity of
$75 million, an impairment charge of $823 million and its net
disposal proceeds of $1,194 million.
Ekibastuz GRES-1
The investment in the Ekibastuz GRES-1 joint venture is included
on the Group’s consolidated balance sheet at 31 December 2013
as an asset classified as held for sale at its equity accounted carrying
value of $1,004 million on 5 December 2013, the date the Group
accepted an offer for its sale for net proceeds of $1,249 million.
As at 31 December 2012, its carrying value was $927 million.
The increase during the year represents the Group’s share
of the post-tax profits to 5 December 2013 of $89 million less
the Group’s share of losses recognised in equity of $12 million.
Net debt
Net debt consists of cash and cash equivalents, current investments
and borrowings. A summary of the net debt position of continuing
operations is shown below:
$ million
Cash and cash equivalents
Current investments
Borrowings
Net debt
2013
1,715
625
(3,111)
(771)
2012
1,246
515
(2,468)
(707)
Cash and cash equivalents and current investments of the
Group’s continuing businesses as at 31 December 2013
were $2,340 million, an increase over the $1,761 million as at
46
31 December 2012, principally due to the receipt of proceeds
from the sale of ENRC and draw downs under the Group’s major
financing facilities. Of the cash and cash equivalents and current
investments, approximately $1,120 million has been drawn under
the CDB/Samruk-Kazyna financing facilities and $7 million under
the CDB Aktogay finance facility. These facilities are intended to be
used for the development of the Group’s projects under the terms
of the individual facility agreements. Current investments are cash
deposits with a three to six month maturity profile.
In order to manage counterparty and liquidity risk, surplus funds
within the Group are held predominantly in the UK and funds
remaining in Kazakhstan are utilised mainly for working capital
purposes. The funds within the UK are held primarily with major
European and US financial institutions and ‘AAA’ rated liquidity
funds. At 31 December 2013, $2,221 million of cash and short-term
deposits were held in the UK and $116 million in Kazakhstan.
Gross borrowings of the Group’s continuing operations increased
from $2,468 million at 31 December 2012 to $3,111 million
at 31 December 2013 (net of arrangement fees), as a result
of the final $200 million draw down under the $2.7 billion
CDB/Samruk-Kazyna financing facilities, a $57 million draw down
under the CDB Aktogay financing facility and a $500 million draw
down under the pre-export finance facility. Scheduled repayments
totalling $107 million were also made under the CDB/Samruk-Kazyna
facilities. The Group had net debt of $771 million at 31 December
2013 compared to $707 million at 31 December 2012.
The CDB/Samruk-Kazyna financing facilities carry interest at
US$ LIBOR plus 4.80% and the pre-export finance facility carries
interest at US$ LIBOR plus 2.80%. The CDB Aktogay finance facility
consists of two separate agreements: the US dollar agreement for
up to $1.3 billion and the RMB1.0 billion agreement ($165 million
equivalent at the RMB/$ exchange rate as at 31 December 2013).
The US dollar agreement attracts interest at US$ LIBOR plus
4.2% and the RMB agreement attracts interest at the applicable
benchmark lending rate published by the People’s Bank of China.
Borrowings under the CDB/Samruk-Kazyna financing facilities
were $2,568 million (excluding amortised fees) compared to
$2,468 million at 31 December 2012. Funds drawn under these
facilities can only be used for development costs of the projects
to which they relate. In January 2014, the Group repaid early
$400 million under the CDB/Samruk-Kazyna financing facilities
relating to the Akbastau-Kosmurun and Zhomart projects, as
development of these projects is not expected to commence
in the near future.
As at 31 December 2013, the Group had a $100 million revolving
credit facility available for standby liquidity and general corporate
purposes. This facility has remained undrawn since inception.
In addition, the Group had $1,443 million under the CDB
Aktogay financing facility available to be drawn down.
Analysis of net debt ($ million)
13
(3,111)
12
(2,468)
1,715
1,246
Borrowings
Current investments
515
625
Taxation
The Group’s core objectives in managing and controlling its tax
affairs and related tax risks are as follows:
• ensuring compliance with applicable rules and regulations
in the jurisdictions in which the Group operates; and
• structuring the business in the most efficient and transparent
manner with the emphasis being on the maximisation of
shareholder value.
• the Group’s tax risks are assessed as part of the Group’s
formal governance processes and are reviewed by the
Chief Financial Officer who reports them to the
Audit Committee on a regular basis;
• significant tax risks, implications arising from those risks and
potential mitigating actions are considered by the Board when
strategic decisions are being taken;
• the tax risks of proposed transactions or new areas of business
are fully considered before proceeding;
• the half year and annual effective tax rate and the composition
of the tax charge are reviewed by the Audit Committee as
part of its remit in reviewing the half-yearly and annual reports;
• the Group builds an equitable relationship with the tax
authorities in the jurisdictions in which it operates;
• the Group takes appropriate tax advice from reputable
professional firms;
• where disputes arise with government authorities with regard
to the interpretation and application of tax legislation, the Group
is committed to addressing the matter promptly and resolving
the matter with the relevant tax authority in an open and
constructive manner; and
• the Group employs professional tax managers within the
corporate head office and the operating businesses, and
provides ongoing technical training to them.
Total tax contribution
During 2013, the Group paid $689 million (2012: $772 million) in taxes across the countries in which it has a presence. Company taxes,
such as corporate income taxes, MET, environmental taxes and employer taxes, comprised $551 million (2012: $607 million) of this total.
In addition, the Group indirectly contributed $138 million (2012: $165 million) in employee taxes and withholding taxes primarily on services,
which the Group collected on behalf of government authorities and paid over to them.
$ million
Taxes paid
Corporate income taxes
Mineral extraction tax
Payroll taxes (employer’s obligations)
Customs and stamp duties
Taxes on properties
Environmental payments
Miscellaneous taxes
Taxes collected and remitted
Withholding taxes on interest and services
Payroll taxes (employee’s obligations)
Total
1
Central Asia1
UK
Germany
2013 total
2012 total
109
259
71
2
17
74
4
536
7
–
3
–
–
–
–
10
1
–
4
–
–
–
–
5
117
259
78
2
17
74
4
551
209
199
78
30
22
66
3
607
4
122
126
662
–
4
4
14
–
8
8
13
4
134
138
689
23
142
165
772
Includes Kazakhstan and Kyrgyzstan and 100% of the Ekibastuz GRES-1 joint venture for the period to 5 December 2013 and for the year ended 31 December 2012.
www.kazakhmys.com
47
Directors’ Report
Tax strategy and risk management
The Group is subject to taxation in the UK, Kazakhstan and the
various foreign countries in which it operates. Tax legislation of the
jurisdictions in which the Group operates differs and is subject to
interpretation by management and the government authorities,
and as such, creates a risk of non-compliance with specific tax
requirements. Whilst the Directors believe that the Group is in
substantial compliance with tax legislation and contractual terms
entered into that relate to tax, the absence of established case
history and the complexity and judgemental nature of tax legislation
in certain jurisdictions result in additional risk for the Group. Specific
areas of interpretation include the applicability of stabilisation under
the Group’s operating licences, including subsoil use contracts,
the applicability of excess profits tax to the Group’s mining
and processing operations and the structuring of cross border
transactions, particularly in respect of the application of
transfer pricing policies.
The Group takes a responsible and transparent approach to the
management and control of its tax affairs and related tax risks,
and has therefore adopted a tax strategy, which has been approved
by the Board, that is aimed at achieving the objectives, thereby
aligning it with the Group’s long-term strategy:
Directors’ Report
Principal Risks
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Operational risks
Health and safety
Risk description
Mining is a hazardous industry with inherent risks and failure to adopt and
embed health and safety management systems could result in harm to
Kazakhmys’ employees as well as fines and penalties and damage to the
Group’s reputation. Fatality levels within the Group are higher than at
comparable internationally listed mining companies with 18 fatalities
recorded for 2013 (2012: 19).
Impact
Health and safety incidents could lead to a number of adverse
consequences, including harm to people, as well as production disruption,
reputational damage and financial loss. The Group has a defined benefits
obligation of $530 million (2012: $373 million), the majority of which is in
respect of long-term disability allowances payable to current and former
employees who suffered workplace injuries. The level of disability payments
are indexed to current pay rates within the Group.
Action
Kazakhmys recognises that the highest standards of health and safety
practices are vital to its success and are a key responsibility of all employees.
The Group’s policies and procedures in these areas are designed to identify
relevant risks and opportunities and provide a clear framework for
conducting business. Further details on the measures being taken to
improve health and safety practices, including the work of the
Group’s HSE function, are set out in the Corporate Responsibility
Report commencing on page 53.
Business interruption
Risk description
Action
The business of mining, smelting and refining metals and the production of
power is resource intensive, and involves a number of risks, including, but
not limited to, geological and technological challenges, weather and other
natural phenomena such as floods and earthquakes, fires, explosions,
equipment failures, delays in supplies and loss of key inputs including
electricity, water and coal, which can cause prolonged mine or plant
shutdowns or periods of reduced production.
Work is being undertaken across the Group, with the support of
appropriate in-house and third-party specialists, to address operational
risk issues. The Group has a number of initiatives underway to improve
equipment availability and reduce outages. The Group is partially protected
from the loss of key assets by the availability of geographically diversified
mining and concentrating operations, the option of selling concentrate
and access to multiple power sources. A combined property damage and
business interruption catastrophic insurance programme is in place which
can provide protection from some of the financial impact of a major
incident at the Group’s main concentrating, smelting and refining facilities
and power stations.
Impact
Any disruption to operational activities could have a negative impact on the
Group’s profitability and cash flows, and may require the Group to make
large unplanned capital expenditures. In addition to revenue losses,
long-term business interruption could result in a loss of customers and
reputational damage.
Political risk
Risk description
Action
Most of the Group’s mining and power operations are in Kazakhstan.
Accordingly, the Group is substantially dependent on the social, political,
economic, legal and fiscal conditions prevailing in Kazakhstan.
The Government of Kazakhstan has actively pursued a programme of
economic reform, helping to make it one of the most politically stable and
economically developed countries in Central Asia. The Board continues
to view the political, social and economic environment within Kazakhstan
favourably, and looking forward, remains optimistic about the conditions
for business in the region. Kazakhmys maintains a proactive dialogue with
the Government of Kazakhstan across a range of issues, including subsoil
use regulations, taxation, the environment and social responsibility and
community relations.
Impact
Changes to Kazakhstan’s foreign trade (export and import), foreign
investments, property, tax, environmental and subsoil use regimes or
social responsibility expectations or other changes that affect the
supportive business environment in Kazakhstan could negatively affect
the Group’s business, financial position and performance and decisions
on future investments.
48
New projects
Action
The development of new projects involves many risks including geological,
engineering, procurement, staffing, financing and regulatory risks. If the
Group fails to adopt an appropriate procurement and project management
strategy, it may experience delays to project schedules and an increase in
costs. Regulatory risks include failures to obtain and maintain applicable
permits, licences or approvals from the relevant authorities to perform
certain development work.
Prior to an investment decision being made, certain evaluation activities
are performed including, where appropriate, feasibility and other technical
studies. Significant projects are subject to the Group’s capital appraisal
process, including Board review and approval as they progress. There are
also a number of planning and monitoring procedures in place addressing
the management of capital expenditure. The Group ensures that sufficient
expertise, from both in-house and third-party specialists, is utilised on
projects throughout their life cycle. In 2013, the Group appointed Non
Ferrous China to provide additional resources to the Bozshakol project,
focused on the construction and commissioning of the processing plant.
The Group is assessing the Aktogay project and plans to replace the
principal contractor with several smaller contracts in 2014. The Projects
Assurance Committee regularly assesses the operational and financial
status of these projects to identify any material risks to their successful
commissioning and start-up. In respect of project funding, Kazakhmys has
committed financing in place for Bozshakol and Aktogay. Details on the
progress the Group is making with the major projects are included in
the Operating Review on page 34.
Impact
Projects may fail to achieve the desired economic returns due to an inability
to recover mineral reserves as planned and higher than expected capital
and operating costs. Projects may also fail to complete or suffer delays
which may reduce future production volumes and result in a financial loss
to the Group. A reduction in future production volumes would also
increase the cash cost on a per unit basis. A lack of available funding
may prevent projects being completed.
Change management
Risk description
The Group is taking action to cut costs and review discretionary capital
expenditure in order to improve the profitability and operating cash flows
of the business. An optimisation programme and asset review commenced
in 2013 which has resulted in operating cost and capital expenditure
savings. Certain production assets and medium-sized projects have been
suspended and impairments of $670 million have been recognised,
including $596 million in respect of operating Zhezkazgan mines.
The optimisation programme and asset review are progressing in 2014,
continuing the assessment of production assets and potential labour,
material usage and supply chain efficiencies. The asset review could
lead to the divestment of certain operations.
Impact
The optimisation programme and asset review may not result in the
expected benefits being achieved and may itself lead to increased
operational risks and additional costs being incurred. A change in use
of assets, or revised expectations of their future economic potential,
could result in impairment charges being recognised. The divestment of
certain operations could result in accounting losses on their disposal and
increase the Group’s financial gearing. The optimisation programme, asset
review and potential divestment of certain operations may adversely
affect other initiatives, operational results and negatively impact labour,
community and Government relations. Further information on the
potential impact of the divestment of certain operations is included
under the ‘Acquisitions and divestments’ risk.
Action
The Group has formed a cross-functional project team, supported by
external advisors, to lead the optimisation programme, asset review and
assess the potential divestment of certain operations, which is overseen
by the Board. The Group is engaged with key stakeholders, including
representatives of the workforce and the local and national Government.
The terms of any divestment of operations would also require approval
in accordance with London Stock Exchange Rules.
Labour, mining equipment and supplies
Risk description
Commodity price fluctuations can have an impact on industry demand for
labour, mining equipment and supplies. In periods of elevated commodity
prices competition for skilled personnel intensifies, both internationally and
within Kazakhstan, and availability of mining equipment and supplies can be
subject to long lead times and cost inflation. The remote location of some
of the Group’s operations also makes the attraction and retention of skilled
staff at these sites more challenging.
Impact
Kazakhmys may suffer shortages of skilled workers and delays in obtaining
mining equipment and supplies which limit the Group’s ability to operate
effectively. Coupled with a decline in grades at the Group’s mature mines,
inflation of employee costs, mining equipment and supplies increase
operating and capital costs which affect the Group’s financial performance,
and these factors together may impact the economic viability of certain
mines and projects. In 2013, the total cash operating costs of Kazakhmys
Mining rose by 7% and impairments have been recognised on certain assets
due to their challenging economic outlook.
Action
The Group actively monitors the market for labour and mining equipment
and supplies to remain competitive in the hiring of staff and procurement
of mining equipment and supplies. Kazakhmys has an extensive social
programme for its employees and their dependents and invests in training
facilities and staff development to raise skill levels. To mitigate inflationary
pressures the Group has an optimisation programme and asset review
underway to improve cash generation and is in active discussions with
the Government on further measures to improve the Group’s
financial performance.
www.kazakhmys.com
49
Directors’ Report
Risk description
Directors’ Report
Principal Risks continued
Labour and community relations
Risk description
Many of the Group’s employees are represented by labour unions under
various collective labour agreements. Negotiations of wages may become
more difficult in times of higher commodity prices and consequently higher
profits in the mining industry, as labour unions may seek wage increases and
other forms of additional compensation. In addition, the Group’s employees
may seek wage increases outside of the collective labour agreements and
labour agreements may not prevent a strike or work stoppage.
The Group operates in locations where it is the major employer and may
also provide a range of services to the local community such as heat and
power. Community expectations are typically complex with the potential
for multiple inconsistent stakeholder views that may be difficult to resolve.
Impact
Poor employee relations influenced by internal and external factors could
result in an unstable workforce that disrupts operations or seeks wage
increases and other forms of compensation, having a material adverse
affect on the Group’s financial performance. In 2013, labour costs at
Kazakhmys Mining rose by 7%. The disability benefits obligation within the
employee benefits provision is also linked to current wage rates.
The dependence of certain communities on the Group for employment
and the provision of services may impose restrictions on the Group’s
flexibility in taking certain operating decisions which could have a material
adverse affect on the Group’s financial position. Services provided to
communities may also be loss-making and require capital investment
thereby adversely impacting the Group’s cash flows.
Action
A full engagement strategy with community representatives, unions and
employees operates within the Group which aims to address concerns
raised by different stakeholders. The Group also has an extensive social
programme for its employees and their dependents. The Group has
succeeded in raising tariffs for certain of the services it provides to
communities with the objective ultimately achieving market rates.
The Group works closely with the Government on social matters, which
has included the transfer of certain social assets to Government ownership
and management. Further details of the Group’s social programme are set
out in the Corporate Responsibility Report commencing on page 53.
Reserves and resources
Risk description
Action
Kazakhmys’ ore reserves and mineral resources for operating mines and
development projects are largely based on the estimation method for ore
reserves and mineral resources established by the former Soviet Union.
There are numerous uncertainties inherent in estimating ore reserves and
mineral resources, and geological, technical and economic assumptions that
were valid at the time of estimation may change significantly when new
information becomes available. A re-assessment of the future economic
potential of the Zhezkazgan mines has resulted in the ore reserves
associated with these mines being excluded from the statement of
reserves and mineral resources.
The Group’s ore reserves and mineral resources are published in
accordance with the criteria of the JORC Code and can be found on
pages 168 to 172. Kazakhmys engages the services of independent technical
experts to annually convert reserve and resource calculations for operating
mines and development projects from the in-house method established by
the former Soviet Union to the method prescribed by the JORC Code.
The Group’s ore reserves and mineral resources were last audited in 2010
by an independent technical expert. A project is ongoing to digitise selected
mines’ ore reserves which will be used in the future for determining
estimates of ore reserves and mineral resources and to support
improved estimation of ore grades and mine planning.
Impact
Changes in ore reserves and mineral resources could adversely impact
mine plans and the economic viability of projects resulting in economic
losses, negatively impacting the Group’s financial position and performance.
Compliance risks
Subsoil use rights
Risk description
Impact
In Kazakhstan and certain other countries in which the Group operates
all subsoil ore reserves and mineral resources belong to the State. Subsoil
use rights are not granted in perpetuity, and any renewal must be agreed
before the expiration of the relevant contract or licence. Rights may be
terminated if the Group does not satisfy its licensing or contractual
obligations, which may include financial commitments to State authorities
and the satisfaction of mining, development, environmental, social,
health and safety requirements. In recent years, legislation relating to
subsoil use rights has come into force in Kazakhstan, which sets out
stricter requirements on the performance of licence obligations,
technical documentation, work programmes and the level of goods
and services sourced from Kazakhstan. The authorities have also
increased their monitoring of compliance with legislation and subsoil
use contract requirements.
As many of Kazakhstan’s subsoil use laws have been adopted relatively
recently and remain untested in the country’s judicial system, the legal
consequences of a given breach may not be predictable. However,
non-compliance with the requirements of subsoil use contracts could
potentially lead to regulatory challenges and subsequently to fines and
litigation, and ultimately to the loss of operating licences. The loss of any
of the Group’s subsoil use rights could have a material adverse affect
on its mining operations.
50
Action
The Group’s management makes every effort to engage with the relevant
regulatory authorities and ensure compliance with all relevant legislation
and subsoil use contracts. The Group’s procedures to ensure compliance
with the terms of subsoil contracts have been updated to reflect the
requirements of legislation, including more active procurement of goods
and services from Kazakhstan. In 2013, 68% of goods and services used
by the Mining Division were sourced from Kazakhstan. A specialist
department is also tasked with monitoring compliance with the terms
of the subsoil use contracts.
Environmental compliance
Risk description
The Group operates in an industry that is subject to numerous
environmental laws and regulations. As regulatory standards and
requirements continually develop, the Group may be exposed to
increased compliance costs and environmental emission charges.
Policies and measures at a national and international level to tackle
climate change will increasingly affect the business, thereby presenting
greater environmental and regulatory risks.
Impact
A violation of environmental laws, or failure to comply with the
instructions of the relevant authorities, could lead to the suspension of
operating licences, challenges to subsoil use mining rights, fines and
penalties, the imposition of costly compliance procedures, reputational
damage and financial loss. New or amended environmental legislation or
regulations may result in increased operating costs, additional capital
investment or, in the event of the Group’s non-compliance, the possibility
of fines, penalties or other actions which may adversely affect the Group’s
financial performance and reputation. Emissions charges in Kazakhstan have
been increased over recent years and the authorities are adopting an
increasingly robust stance on compliance with environmental standards.
Action
The Group has policies and procedures in place which set out the required
operating standards for all employees. Kazakhmys monitors its emissions
and in recent years has invested in reducing its environmental emissions.
The Group liaises with the relevant governmental bodies on environmental
matters, including the development of new legislation. Further details of the
environmental measures being taken by the Group are set out in the
Corporate Responsibility Report commencing on page 53.
Directors’ Report
Financial risks
Commodity prices
Risk description
Impact
The Group’s normal policy is to sell its products under contract at
prices determined by reference to prevailing market prices on international
global metal exchanges. The Group’s financial results are strongly influenced
by commodity prices, in particular copper and the major by-products, gold,
silver and zinc. The prices for these metals are dependent on a number
of factors, including world supply and demand and investor sentiment.
In particular, Kazakhmys is exposed to demand from China as described
below, a major consumer of the metals which the Group produces.
Due to these factors, commodity prices may be subject to significant
fluctuations, which could have a positive or negative impact on the
Group’s financial results.
Commodity prices can fluctuate widely and could have a material
impact on the Group’s asset values, revenues, earnings, cash flows
and growth prospects.
Action
The Group keeps under regular review its sensitivity to fluctuations in
commodity prices. The Group does not as a matter of course hedge
commodity prices, but may enter into a hedge programme for certain
commodities where the Board determines it is in the Group’s interest
to provide greater certainty over future cash flows. The Group adopts
a prudent approach in its financial planning and investment appraisal,
reflecting the volatility in commodity prices.
Exposure to China
Risk description
Action
In addition to the impact of Chinese demand on the pricing of Kazakhmys’
major products, as noted under the ‘Commodity prices’ risk above, the
Group makes significant physical sales to a limited number of customers in
China. In 2013, sales to China accounted for 57% of Kazakhmys Mining’s
revenues. The proportion of sales into China has increased following the
suspension of the Zhezkazgan smelter in 2013 which has led to the sale of
concentrate, and Chinese sales are likely to increase further when
production commences from the two major growth projects, Bozshakol
and Aktogay. The Group uses contractors and materials from China. China
is also an important source of financing to the Group with long-term debt
facilities secured totalling $4.2 billion, primarily for the development of
Bozshakol and Aktogay.
The Group has historically sold a significant volume of its copper cathode
production into Europe, as well as into China, thereby taking advantage
of its geographic position which provides access to both major markets.
In the event that demand reduced in China for the Group’s finished
products, Kazakhmys would allocate its sales between the two markets
to obtain the best commercial terms. The financing line for Bozshakol has
been drawn and the Aktogay loan agreement is a committed loan facility,
thereby providing greater certainty over the funding of the Group’s
growth projects. Kazakhmys also maintains relationships with a number
of international lending banks, having secured a $1 billion pre-export
finance facility in December 2012, and has the flexibility to consider other
sources of capital such as the bond or equity markets, if so required.
Impact
Changes to China’s fiscal or regulatory regimes or lower Chinese copper
consumption could reduce demand in China for the Group’s major
products, leading the Group to direct a greater volume of sales to its
other major market, Europe. Changes to Chinese government policy
on credit or cross border lending may affect the availability of Chinese
bank lending to the Group.
www.kazakhmys.com
51
Directors’ Report
Principal Risks continued
Acquisitions and divestments
Risk description
In the course of delivering its strategy, the Group may acquire or dispose
of assets or businesses. Corporate transactions may, however, fail to
achieve the expected benefit or value to the Group.
Impact
Changing market conditions, incorrect assumptions or deficiencies in
due diligence processes could result in acquisitions failing to deliver the
expected benefit or value to the Group, leading to adverse financial
performance and failure to meet expectations. Acquisitions could also lead
to the Group assuming liability for the past acts of acquired businesses,
without recourse to other parties. The disposal of assets or businesses may
not achieve the expected proceeds due to changing market conditions or
deficiencies in the sales process.
Action
Specialised staff are assigned to manage corporate transactions, supported
where appropriate by external advisors. Due diligence processes are
undertaken on acquisitions and material transactions are subject to Board
review and approval, including ensuring the transaction is aligned with the
Group’s strategy, consideration of the key assumptions being applied and
the risks identified.
Liquidity
Risk description
The Group is exposed to liquidity risks, including the risk that borrowing
facilities are not available to meet cash requirements, and the risk that
financial assets cannot readily be converted to cash without the loss
of value.
Impact
Failure to manage financing risks could have a material impact on the
Group’s cash flows, earnings and financial position as well as reducing the
funds available to the Group for working capital, capital expenditure,
acquisitions, dividends and other general corporate purposes.
Action
The Group manages liquidity risk by maintaining adequate committed
borrowing facilities and working capital funds. Surplus funds within the
Group are held predominantly in the UK in order to manage counterparty
and liquidity risk. The Board monitors the net debt level of the Group
taking into consideration the expected outlook of the Group’s financial
position, cash flows and future capital commitments. Kazakhmys adopts a
prudent approach in managing its liquidity risk, reflecting the volatility in
commodity prices. In 2013, the Group sold its ENRC investment and has
agreed the sale of its 50% holding in Ekibastuz GRES-1 for combined cash
proceeds in excess of $2.0 billion. The Group has secured committed
funding for the development of Bozshakol and Aktogay. A $1.0 billion
pre-export finance facility was secured in December 2012 for general
corporate purposes and to provide additional liquidity during the
development of the major projects which was $500 million drawn
at 31 December 2013, the date the availability period expired.
Further details are set out in the Financial Review on page 46.
Taxation
Risk description
Action
As the tax legislation in Kazakhstan has been in force for a relatively short
period of time, tax risks in Kazakhstan are substantially greater than typically
found in countries with more established tax systems. Tax law is evolving
and is subject to different and changing interpretations, as well as
inconsistent enforcement. Tax regulation and compliance is subject to
review and investigation by the authorities who may impose severe fines,
penalties and interest charges.
The Group makes every effort to comply with existing tax legislation, and
works closely with the Government and tax authorities in the review of
proposed amendments to tax legislation and regulation. Further details of
the Group’s tax strategy and risk management are set out in the Financial
Review on page 47.
Impact
The uncertainty of interpretation, application and the evolution of tax laws
create a risk of additional and substantial payments of tax by the Group,
which could have a material adverse affect on the Group’s cash flows,
financial performance and position.
52
Directors’ Report
Corporate
5HVSRQVLELOLW\LQGHWDLO
Health and safety
Improving our safety record remains our absolute priority. In 2013,
we spent approximately $40 million in this area and continued
to integrate industry and international best practices into our
production operations. We remain focused on the six key areas
of roof collapse, contact with energy sources, ventilation, personal
protective equipment, training and skills, and pedestrian safety.
We reinforce our safety culture at every opportunity.
Directors’ Report
Responsible behaviour supports our business strategy by helping us
to manage reputational and regulatory risks, access capital, reduce
operational costs, build good relationships with regulators and local
communities, and attract and retain talented employees. Acting
responsibly also helps to support social and economic development
in the communities where we operate – our taxes, employee
remuneration, spending and social investment make a significant
contribution to the economy of Kazakhstan. Improving our health
and safety performance remains our first priority, as safe and healthy
working conditions are the minimum our employees and contractors
should expect.
Expert advisors from DuPont continued to assist us in strengthening
our safety management and performance. For example, in 2013,
DuPont helped us to further integrate health and safety into our
management structure at every level, from the Board of Directors
down. This is increasing involvement in, and accountability for, health
and safety management, and improving the information flow in both
directions. Our website provides further details of organisational
structures and accountabilities.
The material health, safety and environmental (HSE) risks included
in our Group risk management process are described on page 48.
This section summarises our performance and significant changes
made to our approach to corporate responsibility (CR) in 2013.
Performance against our CR KPIs is reported on page 21, with an
accompanying message about our priorities and progress from
Eduard Ogay, Chief Executive Officer of Kazakhmys Corporation
LLC. Our website provides further details of our approach and
performance, including case studies, at www.kazakhmys.com/
corporate_responsibility.
All business units now carry out regular behavioural audits,
which assess whether employees are wearing the correct
protective equipment and following the correct procedures
when performing their jobs. The audits are designed to explain
and encourage the correct behaviour, and to put in place
corrective action plans where necessary.
We continue to develop our internal reporting systems to improve
the management of data. We are currently working with external
consultants to provide greater assurance over our CR reporting.
Following a month-long pilot project at two sites in Zhezkazgan
and the East Region, we have begun the company-wide rollout of
a hazard-spotting programme to make this activity routine for all
employees. After the pilot, employees were noticeably more likely
to spot hazards, and compliance with our safety standards improved.
Every employee is expected to assess risks in their immediate
workspace at the beginning of their shift, and should not start work
if they identify a hazard that cannot immediately be made safe.
Governance and management
Our aim is to run safe and efficient operations that meet regulatory
requirements as a minimum, and applicable international standards
wherever possible. We take a decentralised approach, with our
divisions and business units tailoring our corporate policies and
standards to meet local needs, with oversight from the Group.
Responsibility for aspects of CR including health and safety,
environmental management and anti-bribery and corruption
is integrated throughout our production operations. Ongoing
training and communication programmes ensure that all employees
understand the policies, standards and working practices they
must follow. Our aim is to build a supportive culture that explains,
encourages and rewards safe and ethical behaviour.
The Board of Directors has ultimate responsibility for CR, and
is supported by a Group Health, Safety and Environment (HSE)
Committee. More information about the roles and responsibilities
of the Board and HSE Committee is available on pages 72 and 73.
Implementation of our health and safety policies and standards is
overseen by a Group Health and Safety Manager. Each division has
a dedicated health and safety department, and specialists are on site
at each facility. The Group Health and Safety Manager and
Operational HR Director work together to strengthen our
safety culture and training.
To provide visible results and make all employees accountable for
their safety, we encourage them to look for ‘quick wins’ – simple
actions that make the workplace safer. Examples include storing
tools tidily and in the right location.
All operational employees receive 40 hours of mandatory safety
training each year, which is a legal requirement in Kazakhstan. We also
continue to roll out more detailed training, developed with DuPont,
on our corporate safety standards. This training focuses on line
managers, so they can cascade their safety knowledge down to their
teams. Specialists from DuPont have assessed which of our facilities
are now fully capable of delivering the training without external help,
so that DuPont can focus on sites most in need of support.
We believe that the understanding of our safety principles and
implementation of safe working standards is core to the success of
our health and safety programme. In Zhezkazgan, we have begun
testing understanding of our standards to assess the effectiveness
of our training. Employees have one month to prepare for the test,
and those who fail are given ten days before resitting it. Employees
who fail twice face disciplinary action.
As well as supporting the roll out of safety training, in 2013,
a separate team from DuPont began to conduct site visits to
check compliance with our safety standards. The compliance
checks will continue in 2014.
www.kazakhmys.com
53
Directors’ Report
Corporate Responsibility continued
Fatalities
We are sorry to report that 15 employees and three contractors
died while working at Kazakhmys this year, compared with 15 and
four respectively in 2012. We continue to work hard to prevent
further fatalities and view every fatal incident as avoidable.
Our focus on reducing incidents involving rock falls is showing
improvement in this area. Historically, this has been the most
common cause of fatal incidents. In 2012, seven out of 19 fatalities
in total resulted from rock fall. In 2013, this figure reduced to three
fatalities, or 17% of the total number for both our employees and
contractors. This is the result of installing additional roof supports,
as well as improved hazard awareness among our employees.
Detailed inspections of roof conditions and identification of risks
upon entering underground areas is becoming common practice
at our operations.
Falls from height were the most common cause of fatalities in 2013.
We are strengthening our efforts to enforce our corporate safety
standard for working at height.
Fatalities by cause
3
1
3
5
1
2
2
1
Rock fall
Slips, trips and falls
Falling objects
Contact with machine parts
Electrocution
Traffic accident
Self-moving equipment and pedestrians
Work at height
Incidents and injuries
Our lost-time injury frequency rate (LTIFR) increased from 1.801 in
2012 to 1.84 in 2013. The total number of lost-time injuries among
our employees has seen a slight reduction from 174 in 2012 to 172
in 2013. However, total hours worked have reduced by a larger
amount following the suspension of operations at our Zhezkazgan
smelter and the concentrator in Satpayev, resulting in an increase in
LTIFR. We also continue to see improvements in incident reporting
and investigation, which resulted in more cases being registered.
This is a positive development that we believe will underpin future
improvements in our safety performance.
Reporting of minor incidents is still increasing as measures to
encourage this take effect. For example, a sealed first aid box
is sent into every mine for every shift. Breaking the seal prompts
the reporting of an incident at the end of a shift.
There has been an increase in traffic incidents in 2013. Road
transport is provided by a contractor and we have requested a
number of measures to reverse the poor performance. All vehicles
are now equipped with GPS devices that allow for centralised
monitoring of driver speeds, and any driver breaking the speed limit
is subject to disciplinary action, including dismissal in severe cases.
We also request for all cars to be equipped with studded tyres in
snowy and icy weather, and have made it mandatory for all
passengers to wear a seatbelt in the front and back of the car.
Drivers will be held responsible if their passengers are not
wearing a seatbelt.
Occupational health
Risks to workers’ health such as those from noise, vibration,
temperature, lighting and radiation are assessed carefully. Employees
working in an environment that puts them at greater risk of
dust-induced lung disease, hand-arm vibration syndrome or
circulatory disorders are monitored more closely. All employees
have a medical examination when they join the company and then
on an annual basis to prevent occupational diseases and to diagnose
and treat any problems as soon as they occur.
Environment
In 2013, the Government of Kazakhstan announced its intention to
operate a green economy by 2050, with an initial focus on optimising
resource use and improving environmental performance. As a result,
we expect a change of legislation over the coming years in areas
including emissions to air, water resources, energy efficiency and
waste management.
Kazakhmys supports the Government’s vision, and we are
developing an environmental strategy for the next three years.
In addition to existing energy efficiency programmes and emissions
reduction measures, the strategy will include new initiatives for
managing water and resource consumption as well as reduction of
waste. In 2014, we will join the Government’s consultation process
on a roadmap for implementing its new requirements and ensure
our strategy is aligned to this.
While the new measures are under consultation, we will maintain
our existing programme of environmental risk assessment and
management to ensure our performance continues to improve
and that each business unit meets current regulatory requirements.
Energy use
In 2013, we continued to implement our Group-wide energy
efficiency plan to ensure we contribute to the Government’s target
of reducing energy use in Kazakhstan by 25% by 2020. By the end
of the year, we completed detailed energy audits at our smelters
and implemented around 50% of the resulting energy efficiency
measures. These measures include installing or upgrading meters to
enable more accurate reporting on energy use, as well as efficiency
measures such as upgrading equipment and adjusting schedules to
optimise equipment use. Audits and energy efficiency plans will be
fully implemented in 2015, with a view to be certified to the ISO
50001 international energy management standard. We will set
energy saving targets for the business once all energy audits
are completed.
In 2013, Group-wide energy use was 5,800 GWh, 7% lower than in
2012. This breaks down into reductions of 8% in the Mining Division
and 6% in the Power Division. The drop in usage is primarily the
result of lower production output at Ekibastuz GRES-1, and the
suspension of one of our smelters and a concentrator in the second
half of 2013. We anticipate further reductions as our energy
efficiency programme takes effect.
Power generated at Ekibastuz GRES-1 is sold to third parties and
is not used in copper production. Due to reduced demand, the
amount of both gross power generated and power sold to third
parties fell by 11%. The captive power plants that supply our mining
operations also sell roughly half of the energy they generate to third
parties. This rose in 2013 from 2,098 GWh to 2,366 GWh.
Operational energy use (GWh)
1
We have restated the LTIFR for 2012 to exclude contractor man-hours
at Ekibastuz GRES-1
13
12
4,219
Mining Division
1,675
5,218
11
54
1,581
4,580
Power Division
1,599
Greenhouse gas emissions
2013
CO2e emissions
Mining Division (tonnes)
2,382,672
Power Division (tonnes)
23,330,496
CO2e emissions
Group total (tonnes)
25,713,168
CO2e emissions normalised to
Group revenues (tonne/US dollar)
0.007
2012
2,731,319
25,139,619
27,870,938
0.007
In 2013, we announced the disposal of Ekibastuz GRES-1, which
accounts for more than 50% of our CO2e emissions. Total emissions
from the Mining Division and our captive power stations amounted
to 11.7 million tonnes.
This year, we are reporting emissions intensity for the first time.
Due to the very different nature of our Mining and Power Divisions,
we believe reporting emissions per unit of revenue, rather than
copper output, represents a more accurate measure. Group
revenue (including 100% of revenue from Ekibastuz GRES-1)
amounted to $3,595 million in 2013 and $3,933 million in 2012.
Group-wide emissions intensity was 0.007 tonnes/US dollar of
revenue in 2013, in line with 2012 levels.
We collect and calculate Scope 1 emissions data based on the
methodology approved by the Ministry of Environment of
Kazakhstan as of November 2010, which is in turn based on the
Revised 1996 IPCC Guidelines for National Greenhouse Gas
Inventories. We have no material Scope 2 emissions as the power
used during mining and copper production is generated in-house.
Global warming potentials are taken from the IPCC Second
Assessment Report.
In 2013, the Government of Kazakhstan piloted its greenhouse gas
emissions trading scheme by requiring companies to monitor and
report emissions, without trading. Under the scheme, we are
required to submit our annual emission reports for external
verification, prior to delivering them to the regulator. We expect
carbon prices and quotas to be set based on our greenhouse gas
emissions inventory for 2013, which we will submit in May 2014.
Trading is unlikely to begin until 2015.
Total ash emissions for the Group fell by 32% in 2013, to 83,138
tonnes. The Mining Division produced 2,770 tonnes, compared
with 3,464 tonnes in 2012, largely due to warmer weather
conditions which resulted in lower fuel consumption at our
operations. The Power Division reduced ash emissions by 32%
to 80,368 tonnes, from 118,519 tonnes in 2012.
Directors’ Report
Total carbon dioxide equivalent (CO2e) emissions for the Group
totalled 25.7 million tonnes, 8% less than in the prior year. The
reduction is driven by the suspension of the smelter in Zhezkazgan,
lower power output at Ekibastuz GRES-1 and more efficient fuel
consumption at our captive power stations. Total CO2e output for
the Mining Division decreased 13% to 2.4 million tonnes, the Power
Division reported a 7% decrease to 23.3 million tonnes. Emissions
reported for the Power Division include those resulting from the
generation of energy sold to third parties, as well as those arising
from operational energy use.
In 2013, SO2 emissions for the Group totalled 214,123 tonnes,
compared with 258,877 tonnes in 2012. We seek to maintain low
levels of SO2 by capturing emissions from our smelters in Balkhash
and Zhezkazgan and transforming them into sulphuric acid. At
68,573 tonnes, emissions from the Mining Division were 34% lower
than in 2012, which was largely driven by the suspension of the
smelter in Zhezkazgan from September 2013. The Power Division
produced 52,630 tonnes of NOx, compared with 55,246 tonnes in
the prior year. NOx output for the Mining Division decreased by
6% from 2012 to 1,301 tonnes, largely due to warmer weather
conditions which resulted in lower fuel consumption.
Total ash emissions (tonnes, Power Division only)
13
12
11
80,368
118,519
141,304
Ash emissions continue to reduce in the Power Division as a
result of the installation of new electrostatic precipitators at
Ekibastuz GRES-1. In 2013, we installed two additional
precipitators, bringing the total in place to six.
We have also installed two further emulsifiers at our captive power
plants in Balkhash and Karaganda. By 2017, the Karaganda power
station will have emulsifiers on all 16 boilers, each capturing
approximately 2,000 tonnes of ash.
Water
In 2013, the Group used 3.3 million megalitres of water in total,
in line with 2012. Of this, 2.4 million megalitres was recycled process
water, which is captured and reused multiple times. A further
863,055 megalitres was surface water that we draw directly from
lakes, rivers and reservoirs. This is an 8% increase on surface water
withdrawal compared to 2012, which is driven by higher power
generation at our captive power plants. The remaining 53,806
megalitres (under 2% of our total usage) came from potable water
sources such as groundwater, springs and municipal systems that
we share with the local community.
Our new, three-year environmental strategy will include a water
management plan, which we aim to roll out across the Group to
increase accountability for water use at an operational level.
Emissions to air
Our operations produce substantial amounts of sulphur dioxide
(SO2), nitrogen oxides (NOx), ash, as well as low levels of airborne
dust, which contains traces of arsenic. These emissions are one of the
most direct impacts we have on local communities, and we continue
with our programme of equipment upgrades to reduce them.
www.kazakhmys.com
55
Directors’ Report
Corporate Responsibility continued
Waste
The waste management plans we drew up in response to new
legislation introduced in 2012 to reduce waste and control its
disposal are currently under Government review. We will
implement these plans, which include measures to increase
reuse and recycling and ensure responsible disposal of
remaining wastes, as soon as they are approved.
In 2013, the Group produced 126 million tonnes of waste,
of which 23% was reused or recycled. The recycling rate dropped
from the 30% we reported in 2012 due to less rehabilitation work
at sites, where overburden is typically used for finished sections.
The majority of waste produced at our operations is overburden,
tailings and ash from the Mining Division. Most other waste streams
are sent to contractors for recycling, and we also reuse some
materials internally. For example, construction waste and
overburden are currently being used to build dams and to
upgrade the land surrounding switchgear at Ekibastuz GRES-1.
Employees
A skilled workforce is critical to the future of our business, and
we aim to offer attractive careers at all levels. As a minimum, we
are committed to providing fair, safe and secure working conditions
in line with the International Labour Organization’s Declaration on
Fundamental Principles and Rights at Work.
The optimisation of our business has brought changes for many of
our employees, and we are providing support for those who are
affected. The optimisation process focuses firstly on reducing other
operational costs, with headcount reductions only taking place
where necessary. Where employee numbers are being reduced
in Kazakhstan, this is done based on industry benchmarks of the
number of people needed to perform an operation and in
compliance with local regulation. We have provided sufficient
notice of changes to employment contracts, giving people whose
jobs are at risk an opportunity to find a different role. Internal
communications kept our employees informed about the
changes and the reasons behind them.
Ethics and compliance
All employees in relevant positions have now received training
on our anti-bribery and anti-corruption policy, and we are
introducing further measures to embed an ethical culture.
In 2013, our internal audit team and ethical business specialists
GoodCorporation conducted an audit in one region to assess
progress with our anti-bribery and corruption programme. The
results show improvement, with some areas that require further
attention. These include formalising a number of our procurement
procedures to improve transparency.
Other plans for 2014 include requiring senior managers to sign
up to our ethical policies, carrying out bribery and corruption risk
assessments, and developing a clear government relations policy. We
also plan to revise the way we carry out due diligence on contractors.
In 2013, there were 26 calls to our independently-run and
confidential Speak Up helpline for people to report concerns about
unethical practices. The largest number of these reports (31%)
related to unfair treatment at work and four calls, or 15%, were
concerns about dishonest behaviour. All reports are investigated
and appropriate actions taken where necessary.
56
Calls to Speak Up helpline by category
15%
12%
27%
46%
Dishonest behaviour,
e.g. theft, lack of integrity
Health and safety
Human resources,
e.g. unfair treatment
Other, e.g. policies,
reputation
Training and development
We provide training and development opportunities to all our
employees, to incentivise them to stay and progress within the
business. In 2013, our employees received 44 hours of training each
on average. This includes regulated health and safety training, as
well as additional professional development and further education.
We are improving the internal reporting procedures to include
other types of training and professional development, such as,
for example, safety training provided by DuPont. We hope to
include this data in future.
Following the completion of our High Potential Programme in 2012,
we continue to monitor the progress of its participants. Seventy two
of the originally selected 100 candidates are still on the follow-on
programme, with many showing progress in their roles since taking
part. We are currently developing a new programme for mine
supervisors and site managers. The course will comprise a mixture
of classroom and job-based training with a view to create a skilled
operational management reserve focused on modern and efficient
production. Areas of focus will include technical and health
and safety skills, as well as finance, project and human
resource management.
In 2013 we also piloted a programme of behavioural assessments to
better understand how to ensure all employees follow the correct
working practices and safety standards. A cross section of 454
employees from different roles across the Group sat a computerised
test. This comprised randomly selected multiple-choice questions in
three areas: knowledge of our corporate safety standards, of
legislation, and of safe working practices in their particular role.
We are using the results to assess where and how we can
provide greater support to help people work more safely.
Pay and benefits
We aim to reward our employees fairly and have a competitive
remuneration system in place that incentivises safety as well as
productivity. Mining professions are highly paid compared with
other industries in Kazakhstan, and benchmarks show that
Kazakhmys offers competitive remuneration to operational staff.
Each operational employee’s monthly salary comprises 70% base pay
and 30% bonuses. Of the bonus payment, half depends on achieving
health and safety performance targets, and the rest is based on
production targets. In addition, each bonus has a team performance
element, to ensure employees work together to achieve high levels
of safety and productivity. Bonuses for divisional heads are based on
health and safety performance, compliance with Government-set
environmental targets and the amount of environmental fines
incurred, as well as production efficiency and cost control. In the
case of a severe accident or a fatality, bonuses are withheld for
everyone in the affected team.
In accordance with Kazakh law the Group is required to make
payments to employees and former employees for illness and
disability sustained at the Group’s operations. The financial impact
of this is covered in the Financial Review and the Consolidated
Financial Statements.
Equality and diversity
The majority of our workforce in Kazakhstan is local, and we employ
international expertise only where necessary to transfer skills and
best practice in the longer term. In 2013, 99% of employees within
the Mining Division were Kazakh nationals.
We continue to help diversify the local economies and employment
opportunities in Zhezkazgan and Balkhash by working with a supplier
association in each region. The associations have 92 members
employing 4,500 people in total. In addition to providing loans and
guaranteed sales, we support association members in ways such
as deferring loan repayments, or allowing loans to be repaid with
product rather than cash. Our support for a uniform supplier has
enabled the company to expand into managed laundry services.
In 2014, the company will take responsibility for Kazakhmys’ uniform
stock, laundering and replacing items as well as supplying them.
Our efforts to boost the Kazakh economy were recognised with
a national award for local content development for the second
consecutive year.
1
Directors’ Report
We maintain a high level of gender diversity for the mining industry
– in 2013, 34% of our employees were women. This proportion is
particularly high in engineering and technical roles (58%), but is lower
at management level, where 21% are women. The appointment of
Lynda Armstrong as a non-executive Director of Kazakhmys PLC
in October 2013 introduced the first woman to our Board, bringing
female representation to 11%.
Economic development
In 2013, we sourced 67% of our goods and services from companies
based in Kazakhstan. This amounted to spending of almost
$1.3 billion1 with local suppliers.
Including spending at Ekibastuz GRES-1.
Gender diversity (%)
All employees
Managers
34
79
Directors
Men
66
21
89
11
Women
Consultation and communication
We respect the right to freedom of association and consult our
employees and trade unions about changes to our business and
employment conditions.
The majority of our employees are members of Kasip Kazakhmys,
the union created in 2012 on the initiative of Kazakhmys workers.
The union also has around 14,000 external members. The Trade
Union of Mining & Metallurgy Workers of the Republic of
Kazakhstan and Dostoiny Trud also represent some employees.
In addition, our Youth Union had over 20,000 members this year.
In 2013, the trade unions consulted with management on the
aspects of our business optimisation programme that affect
employees. The unions also worked with employees to explain
the changes and help them find and transfer to vacant positions
elsewhere in the Group. Other issues that unions were consulted
on included the revision of some of our bonus structures. The
unions also facilitate discussions with employees who have raised
disputes over issues such as unfair dismissal or wages. In 2013,
there were 10 such cases. The unions are also involved in
monitoring our health and safety practices.
Communities
Kazakhmys contributes to the economy and communities in
Kazakhstan by creating jobs, paying taxes, investing in infrastructure,
using local suppliers and supporting the development of small and
medium-sized businesses. We respect the rights of anyone coming
into contact with our business. For instance, we consult local
communities during project development, and about major
operational changes that may affect them, such as transferring
ownership of social facilities to local governments and community
groups. We also respect and protect local heritage and culture.
Social investment
The Mining Division’s total social investment, including voluntary
spending and spending under licences, was $57 million in 2013,
compared with $52 million in the previous year. Our social
investment programme prioritises projects in education,
sports and culture, local infrastructure and public health.
Projects carried out in 2013 include the ongoing construction of
a town square and monument in Satpayev and the construction
of a new kindergarten for 100 children near our mine in Jambyl
province in southern Kazakhstan and a gift of 16 ambulance cars
to the regional health service in Karaganda.
The transfer of ownership of the social facilities the Group
inherited with its operations is well underway. In 2013, 23
assets were transferred in total. Of these, 11 were sold, 10 were
transferred back to the Government and two were outsourced.
Ownership of around 90 further assets will be transferred in 2014
and 2015. We seek to ensure that the transfer of these facilities
does not affect their use by our employees, and try to provide
preferential terms of use in cooperation with new owners where
possible. Sales of assets to third parties are conditional upon the
new owners retaining the employees.
Breakdown of social investment by category
2%
73%
1%
20%
4%
Sponsorship and donations
Public health
Education
Infrastructure
Sports and culture
Please visit our website for more details about social investment
and all our other CR issues and activities: www.kazakhmys.com/
corporate_responsibility.
www.kazakhmys.com
57
Bozshakol
Construction work on the primary crusher.
Governance
Report
Remuneration Report
60
76
89
Governance Report
Governance
Framework
This section has been prepared in accordance with the
UK Corporate Governance Code (the ‘Code’), which applies
to the Company’s Annual Report and Accounts for the
year ended 31 December 2013.
Code compliance
During the year, the Company complied fully with the provisions of
the Code, save in respect for: (i) the period when Vladimir Kim was
Chairman, as he was not independent at the time of his appointment
due to his significant shareholding in the Company, and (ii) after
Philip Aiken stepped down from the Remuneration Committee
on 31 August 2013 when the membership of that committee
comprised two independent non-executive Directors and the
committee chairman, Simon Heale. Following the appointment of
Simon Heale as Chairman, who was independent at the date of his
appointment as Chairman, and the appointment of Lynda Armstrong
as a member of the Remuneration Committee on 21 October
2013, the Company complied fully with the provisions of the Code.
Leadership
The Role of the Board
The Board is responsible for managing the Company on behalf of
its shareholders and each Director acts in a way which promotes
the long-term success of the Company for the benefit of
shareholders as a whole. The Board ensures an appropriate
balance between promoting long-term growth and delivering
short-term objectives is achieved.
The Board is primarily responsible for: determining strategic
direction and demonstrating leadership; focusing on matters that
consistently add value for the shareholders of the Company, both
present and future; the governance and stewardship of the Group
to provide protection and security for the shareholders’ assets;
the management of the Group’s employees; setting the Group’s
standards and values, and ensuring that its obligations to shareholders
and others are understood and met; and determining the nature and
extent of the significant risks the Group is willing to take to achieve
its strategic objectives. Another key responsibility of the Board is to
ensure that management maintains a system of internal control that
provides assurance of effective and efficient operations, internal
financial controls and compliance with laws and regulations.
The Board has a formal schedule of matters specifically reserved
for its decision which is reviewed regularly. A summary of the
matters reserved for the Board is set out above. These are matters
that are significant to the Group as a whole because of their
strategic, financial or reputational implications or consequences.
60
The Board has four principal committees to deal with specific
aspects of the Group’s affairs. The chairs of the respective
committees provide detailed reports to the Board on the matters
discussed at the committee meetings, thereby ensuring that all
Directors have visibility and the opportunity to discuss such matters.
Directors are required to demonstrate unquestioned honesty and
integrity, a willingness to question, challenge and critique, and desire
to understand and commit to the highest standards of governance.
Each Director must ensure that no decision or action is taken that
places his interests in front of the interests of the business and
commit to the collective decision-making processes of the Board.
The Chairman promotes a culture of debating issues openly and
constructively and individual Directors are encouraged to question
or challenge the opinions of others.
Matters reserved for the Board
Key matters reserved for the Board include the approval of:
• the Group’s strategy, and medium and short-term plans;
• major acquisitions, mergers or disposals;
• major Group financing;
• major capital investments and projects;
• the annual production and financial budget;
• the Group’s risk management strategy and insurance;
• health, safety, environmental and ethical policies;
• the Company’s dividend policy;
• the appointment and removal of any Directors or Company
Secretary of the Company;
• the authorisation of Directors’ conflicts or potential conflicts
of interest;
• the annual performance evaluation of the Board, its committees
and individual Directors;
• the annual report and accounts and half-yearly reports;
• all circulars, reports, prospectuses or other related documents
for shareholders;
• the principal regulatory filings with stock exchanges;
• the rules and procedures for dealing in the Company’s shares; and
• the appointment or removal of the Company’s external auditor
and main financial, legal and technical advisers.
Division of Responsibilities
The Board has agreed a clear division of responsibilities between
the Chairman and the Chief Executive. The roles of the Chairman,
Chief Executive and other Directors are clearly defined so that
no single individual has unrestricted powers of decision.
Further details of the roles and responsibilities of the Chairman,
Chief Executive and Senior Independent Director are set
out opposite.
Roles and responsibilities
Chairman
In addition to being a Board member responsible to the
Company and shareholders, the key roles and responsibilities
of the Chairman include:
• promoting the interests of the Company especially with
regard to Group planning and development to secure a
progressive future;
• ensuring the effective operation of the Board and its
committees in conformity with the highest standards of
corporate governance;
• providing leadership to the Board, setting its agenda, style
and tone of meeting discussions to promote open and
constructive debate and effective decision-making;
• ensuring that shareholders and the Board receive accurate,
timely and clear information on all important matters,
including Director remuneration, corporate governance
and strategic issues;
• chairing the Nomination Committee;
• ensuring comprehensive induction programmes for new
Directors and the needs of all Directors are identified and met;
• ensuring the performance of the Board, its committees and
individual Directors is formally evaluated;
• promoting effective and constructive relationships and
communications between non-executive Directors and
executive Directors and senior management, and holding
meetings with the non-executive Directors without the
executive Directors being present;
• ensuring the Group’s operations comply with all relevant health
and safety standards, and activities are undertaken with special
regard for environmental and social concerns in the countries
in which the Group operates;
• ensuring at all times the Group conducts its business in accordance
with the legal requirements of the countries in which it operates
and the Company’s standards, if higher;
• planning human resourcing to ensure the Company has the
capabilities and resources required to achieve its plans;
• establishing a senior management team which has the knowledge,
skills, attitude and motivation to achieve the Group’s business
objectives both now and in the future;
• developing and maintaining an effective framework of internal
controls over risk in relation to all business activities;
• managing the Group’s risk profile in line with what is deemed
acceptable by the Board;
• recommending to the Board an annual budget and medium-term
financial and production plan; and
• ensuring the flow of information to the Board is accurate,
timely and clear.
Senior Independent Director
of the Senior Independent Director include:
• maintaining an effective working relationship with the
Chief Executive.
• acting as a sounding board for the Chairman and serving as an
intermediary for the other Directors when necessary;
Chief Executive
of the Chief Executive include:
• ensuring the creation and maintenance of a safe working
environment and a safety-focused culture within the
Group’s operations;
• leading the management team in the day-to-day running
of the Group’s business, including chairing meetings of the
Executive Committee;
• developing the Group objectives and strategy having regard
to the Group’s responsibilities to its shareholders, customers,
employees and other stakeholders;
• establishing and maintaining an organisational structure that
will enable the Group’s strategy to be implemented effectively;
• responsibility to the Board for the performance of the
business consistent with agreed plans, strategies and policies;
• developing through investment and divestment an appropriate
asset base for the Group to execute its strategy;
• developing and promoting effective communication with
shareholders and other interested parties;
• meeting with the non-executive Directors (without the Chairman
being present) at least annually and leading the Board in the
ongoing monitoring and annual performance evaluation
of the Chairman;
• monitoring the training and development requirements of
Directors; and
• attending sufficient meetings with a range of major shareholders
to develop a balanced understanding of the issues and concerns of
major shareholders and reporting the outcome of such meetings
at subsequent Board meetings.
Non-executive Directors
The non-executive Directors provide a strong independent element
to the Board and a solid foundation for good corporate governance.
Although all Directors are equally accountable under the law for the
stewardship of the Company’s affairs, the non-executive Directors
fulfil a vital role in corporate accountability. They have a particular
responsibility to: constructively challenge the strategies proposed by
the executive Directors; scrutinise the performance of management
in achieving agreed goals and objectives; and play a leading role in the
functioning of the main Board committees. Between them, the
current non-executive Directors have the appropriate balance of
skills, experience, knowledge and independent judgement from a
variety of business sectors and public life.
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61
Governance Report
• ensuring effective communication with shareholders and
that their views are understood by the Board; and
• acting as a point of contact for shareholders and other
stakeholders to discuss matters of concern which would not be
appropriate through the normal channels of communication with
the Chairman, Chief Executive and Chief Financial Officer.
No such matters of concern were raised by shareholders during
the year ended 31 December 2013;
Governance Report
Governance Framework continued
Corporate governance framework
Developing a
framework
of HSE policies
and standards
to manage risks
Elect the
external
auditor
Shareholder
Ongoing dialogue
to seek and provide
information
Appointment/
removal of
Directors
External Auditor
Findings and
recommendations in relation
to financial reporting
Audit Committee
Integrity of financial
information and
internal controls
Provide assurance
on major capital
projects
Board of Directors
Projects Assurance
Committee
Day-to-day running of the Group
Chief Executive
Board composition
and succession
Executive Committee
Management Team
Effectiveness
Composition of the Board
Effective management and good stewardship are led by the Board,
which currently consists of nine Directors, seven of whom served
throughout the financial year, with Michael Lynch-Bell and Lynda
Armstrong having been appointed on 27 February 2013 and 21
October 2013, respectively.
In addition to the Chairman, there are five independent nonexecutive Directors, two executive Directors and one nonindependent non-executive Director; this balance ensures that no
individual or small group of Directors can dominate the decisionmaking process and that the interests of the minority shareholders are
protected. Biographies of all Directors are set out on pages 24 and 25.
It is Kazakhmys’ policy that at least half the Board should be
independent non-executive Directors. Other than Vladimir Kim,
the Board considers each of its current non-executive Directors
to be independent in character and judgement. In reaching its
determination of independence, the Board has concluded that each
provides objective challenge to management, is willing to stand up
and defend their own beliefs and viewpoints in order to support
the ultimate good of the Company, and there are no business or
other relationships likely to affect, or could appear to affect, the
judgement of Lynda Armstrong, Clinton Dines, Michael Lynch-Bell,
Lord Renwick and Charles Watson. The Board carries out a review
of the independence of its Directors on an annual basis. Vladimir
Kim is not considered by the Board to be independent due to his
significant shareholding in the Company.
62
Remuneration framework
and individual Director packages
Board composition
1
5
1
Independent non-executive
Director
Executive Director
Non-independent
non-executive Director
Chairman
2
The independent non-executive Directors are:
Lynda Armstrong OBE
Appointed to the Board: 21 October 2013
Skills and experience: Lynda Armstrong, a geophysicist by training,
has over 30 years’ natural resources experience with Shell. During her
time with Shell she held a number of senior exploration and
operational roles, including Director UK Exploration and New Business
Development, Exploration Director of Petroleum Development
Oman and Technical Vice President for Shell International.
Other appointments: Chair of the trustees of the British Safety
Council, a non-executive director of Central Europe Oil Company
Limited and director of Calyx Consulting Ltd.
Committee memberships: Member of the Group Health,
Safety and Environment, and Remuneration Committees.
Clinton Dines
Charles Watson
Nationality: Australian
Skills and experience: Clinton Dines has been involved in business
in China since 1980, including senior positions with the Jardine
Matheson Group, Santa Fe Transport Group and Asia Securities
Venture Capital. In 1988, he joined BHP as their senior executive in
China and, following the merger of BHP and Billiton in 2001, became
president, BHP Billiton China, a position from which he retired in
2009 prior to joining Kazakhmys. He brings exceptional knowledge
of China combined with global resource industry and management
experience. He was previously a member of the advisory board of
Pacific Aluminium.
Skills and experience: Charles Watson has an extensive background
in both operational management and major project delivery, having
spent 29 years at Shell. During his time at Shell he held a number of
senior executive positions throughout the world, culminating in his
appointment as executive vice president covering Russia and the CIS,
including oversight of Shell’s activities in Kazakhstan, chairman of
Shell Russia and chairman of the board of directors for the Sakhalin
Energy Investment Company.
Other appointments: Executive chairman, Asia of Caledonia
(Private) Investments Pty Limited and a non-executive director
of Zanaga Iron Ore Company Limited.
Committee memberships: Chairman of the Group Health,
Safety and Environment Committee and member of the
Audit and Remuneration Committees.
Committee memberships: Member of the Audit, and Group
Health, Safety and Environment Committees.
Michael Lynch-Bell
Appointed to the Board: 27 February 2013
Other appointments: Non-executive director of Equus Petroleum
Plc, Seven Energy International Limited and Lenta Limited. He is
also a board member and treasurer of Action Aid International.
Committee memberships: Chairman of the Audit Committee
and member of the Nomination Committee.
Commitment
All Directors are expected to attend each Board meeting and
each committee meeting for which they are members, save for
exceptional circumstances. Scheduled Board and committee
meetings are arranged at least a year in advance to allow
Directors to manage other commitments.
All Directors are provided with the papers for consideration and
other relevant information in advance of each meeting. If a Director
is unable to attend a meeting because of exceptional circumstances,
they still receive the papers and other relevant information in
advance of the meeting and have the opportunity to discuss with
the relevant chairman or the Company Secretary any matters they
wish to raise to ensure their views are considered and, if necessary,
follow up with the decisions taken at the meeting. The Chairman,
Chief Executive and Company Secretary are always available to
discuss issues relating to meetings or other matters with the
Directors. Reasons for non-attendance are generally prior
business and personal commitments or illness.
The attendance of Directors at scheduled meetings of the Board
which they were eligible to attend and the number of meetings
attended during 2013 is shown below:
Skills and experience: Lord Renwick has had a diplomatic career
spanning over 30 years, including serving as British Ambassador
to the United States and to South Africa. He was a non-executive
director of BHP Billiton plc, SABMiller plc, British Airways plc,
Liberty International plc, Fluor Corporation, Harmony Gold Mining
Company Limited and Bumi plc. Lord Renwick’s diplomatic,
financial and mining experience make him a valuable contributor
to the Board.
Other appointments: Deputy chairman of Fleming
Family & Partners Limited and a non-executive director of
Compagnie Financière Richemont SA. He is also vice chairman,
Investment Banking of J.P. Morgan Europe and vice chairman
of J.P. Morgan Cazenove.
Committee memberships: Chairman of the Remuneration
Committee and member of the Nomination Committee.
Directors during the year
Number of
scheduled Board
Number of
meetings eligible
scheduled Board
to attend meetings attended
Simon Heale
Oleg Novachuk
Eduard Ogay
Philip Aiken1
Lynda Armstrong2
Clinton Dines
Vladimir Kim
Michael Lynch-Bell3
Lord Renwick
Charles Watson
Daulet Yergozhin4
5
5
5
3
1
5
5
5
5
5
5
1
Philip Aiken stood down as a Director on 31 August 2013.
2
Lynda Armstrong was appointed as a Director on 21 October 2013.
3
Michael Lynch-Bell was appointed as a Director on 27 February 2013.
4
Daulet Yergozhin stood down as a Director on 5 December 2013.
www.kazakhmys.com
5
5
3
3
1
5
5
5
5
5
2
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Governance Report
Skills and experience: Michael Lynch-Bell has extensive experience
in the mining, oil and gas industries having spent his whole 38 year
career with Ernst & Young developing and later leading its global
mining and energy practices. During his time with Ernst & Young,
he played a key role in establishing Ernst & Young’s practice in
Kazakhstan and advised a number of major CIS companies on
transactions. He retired as senior partner of Ernst & Young’s
transaction advisory practice for mining and metals and as an
elected member of its global advisory council in June 2012.
Other appointments: Non-executive director of Taipan Resources
Inc. and JSOC Bashneft.
Governance Report
Eduard Ogay missed two Board meetings and Daulet Yergozhin
missed three Board meetings due to commitments with
representatives of the Government of Kazakhstan. They provided
any comments to the Chairman or Company Secretary on matters
to be discussed in advance of those meetings they missed.
In addition to the five scheduled meetings of the Board during the
year, one further meeting was held which focused solely on a review
of the Group’s strategy and 12 further meetings were also held,
mainly in respect of the sale of the Group’s interests in ENRC PLC,
Ekibastuz GRES-1 and Kazhydrotechenergo LLP. Despite these
meetings being held at short notice attendance levels were high.
Development
On appointment, all new Directors receive a comprehensive and
structured induction tailored to their individual requirements. The
induction programme, which is arranged by the Company Secretary,
includes visits to some of the Group’s businesses and meetings with
senior managers and advisers as appropriate. The programme is
designed to facilitate their understanding of the Group, the key
drivers of business performance, the role of the Board and its
committees, the Company’s corporate governance practices and
procedures, as well as providing them with appropriate training and
guidance as to their duties, responsibilities and liabilities as a director
of a public limited company.
To assist Directors in the performance of their duties, there are
procedures in place to provide them with appropriate and timely
information, including receiving information between meetings
regarding Group business development and financial performance.
This enables them to discharge their duties on strategic, financial,
operational, compliance and governance issues effectively.
Where appropriate, additional training and updates on particular
issues are provided. During the year, the Board received briefings on
changes to the Listing Rules, narrative reporting, the Takeover Code
and the UK regulatory structure. The Board sought advice from
corporate advisers regarding the sale of assets during the year to
ensure the transactions were entered into in the best interests of
shareholders. All Directors are provided with the opportunity for,
and encouraged to attend, training to ensure they are kept up to
date on relevant legal and financial developments or changes in
best practice. Typical training for Directors includes attendance
at seminars, forums, conferences and working groups as well as
receiving e-mail alerts from relevant bodies providing updates
on various legal, regulatory and corporate governance matters.
To ensure the Board as a whole remains fully informed of the views
of shareholders, the Board receives regular reports on shareholder
sentiment from the Head of Corporate Communications. Although
not part of their induction programme, all non-executive Directors
can attend shareholder meetings and analyst presentations, and
shareholders may meet informally with all Directors at the
Annual General Meeting.
Information and support
The Company Secretary, through the Chairman, is responsible
for advising the Board on all governance matters and for ensuring
that Board procedures are followed, applicable rules and regulations
are complied with and that due account is taken of relevant codes
of best practice. The Company Secretary is also responsible for
ensuring communication flows between the Board and its
committees, and between senior management and non-executive
Directors. All Directors have access to the advice from the
Company Secretary and, in appropriate circumstances, may
obtain independent professional advice at the Company’s expense.
The appointment and removal of the Company Secretary is a
matter reserved for the Board as a whole.
The Company Secretary is Robert Welch, who joined the Group
in 2006 as Deputy Company Secretary and was appointed to his
current position in March 2007. He is an Associate of the Institute
of Chartered Secretaries and Administrators and is secretary to
all of the Board committees, except the Audit Committee. The
secretary to the Audit Committee is Stephen Hodges, Deputy
Company Secretary, who joined the Group in 2007 and is
also an Associate of the Institute of Chartered Secretaries
and Administrators.
Performance evaluation
An internal Board performance evaluation process facilitated by
the consultant, Lintstock Ltd, was undertaken in late 2013/early
2014 in respect of the 2013 calendar year. The process was carefully
structured but pragmatic, designed to bring about a genuine debate
of issues that were relevant, and assist in identifying any potential for
improvement in the Company’s processes. It entailed the completion
of tailored questionnaires on the performance of the Board, its
committees and its executive and non-executive Directors by each
Director (excluding Lynda Armstrong who was appointed on
21 October 2013) and the preparation of a composite report.
The results of the performance evaluation report were presented
and discussed at the February 2014 Board meeting and will be
disclosed in next year’s annual report and accounts. The last
externally conducted Board performance evaluation was conducted
in 2011. Lintstock Ltd has no other connection with the Company.
As set out in last year’s annual report and accounts, an internal Board
performance evaluation process was undertaken in late 2012/early
2013 in respect of the 2012 calendar year. The process entailed the
completion of detailed questionnaires on the performance of the
Board, its committees and its executive and non-executive Directors
by each Director, which were completed in 2012.
The Board questionnaire focused on:
• Board composition, expertise and dynamics;
• adequacy of information provided by management and time
allocated for discussion;
• performance and composition of Board committees;
• the Board’s strategic and operational oversight;
• risk management and internal control;
• succession planning and human resource management;
• the information flow and oversight on the Group’s major
projects at Bozshakol and Aktogay; and
• the priorities for improving the Board’s performance in
the future.
64
The results of the Board performance evaluation report were
presented at the May 2013 Board meeting and it concluded that
the Board and its committees operated effectively. The main
areas identified for improvement were:
• Board and committee composition, with a focus on expertise
and dynamics;
• greater analysis of the Company’s performance against
peers; and
• more exposure to senior management, enabling the Board to
better evaluate senior management and provide greater input
into succession planning.
During the year, both Chairmen held a number of meetings with
non-executive Directors without executive Directors being present.
Philip Aiken, whilst appointed as Senior Independent Director, led
the evaluation of the performance of Vladimir Kim as Chairman by
the non-executive Directors for 2012. Michael Lynch-Bell has also
conducted an evaluation of the performance of Simon Heale as
Chairman in respect of 2013.
Re-election
Directors newly appointed by the Board are required to submit
themselves for election by shareholders at the annual general
meeting following their appointment. Lynda Armstrong, having
been appointed by the Board on 21 October 2013, will retire and
submit herself for election at the forthcoming Annual General
Meeting. In accordance with best practice and the Code, all other
Directors will be submitted for re-election at the forthcoming
Annual General Meeting.
The Board has a procedure for authorising a conflict or potential
conflict of interest. Under this procedure, Directors are required
to declare all directorships or other appointments outside of the
Group which could give rise to a conflict or potential conflict of
interest. In consideration of each conflict or potential conflict of
interest declared by a Director, firstly, only independent Directors
will be able to take the relevant decision, and secondly, in taking
the decision the Directors must act in a way they consider to be
in good faith and will most likely promote the Company’s success.
In addition, the Directors can impose limits or conditions when
giving authorisation if appropriate.
Furthermore, the Company’s Articles of Association include further
provisions relating to confidential information, attendance at Board
meetings and availability of Board papers to protect a Director being
in breach of duty if a conflict of interest arises. These provisions will
only apply where the position giving rise to the potential conflict of
interest has previously been authorised by the Directors.
UK Bribery Act 2010 (the ‘Bribery Act’)
The Bribery Act established criminal offences for: bribing another
person; receiving a bribe; bribing foreign officials; and failures by
commercial organisations in preventing bribery. In response to the
legislation, the Group has implemented a Group Anti-Bribery and
Corruption Compliance Programme to assist in the prevention of
the involvement of individuals or Group entities in unlawful activities.
The Board has a clear stance on bribery and corruption and
attaches the utmost importance to the Programme in clarifying
the standards expected of all employees of the Group wherever
it conducts business.
The Programme includes a clear statement on anti-bribery and
corruption, which is fully supported by the Board, by the use of:
corruption risk assessments across the Group; clear and practical
policies and procedures; due diligence of business partners; training;
and monitoring and assurance. As part of the Programme, a number
of Group policies have been established including an Anti-Bribery
and Corruption Code, a Facilitation Payments Policy, a Gifts
and Hospitality Policy, a Third Party Due Diligence Compliance
Programme, a Conflicts of Interest Policy and a Speak-Up Policy.
An independent review of the adequacy of the Programme in
meeting the requirements of the Bribery Act was carried out
by an external consultant, GoodCorporation, during 2012.
During 2013, outcomes from the external review carried out by
GoodCorporation on the Programme were reviewed. The review
found that since the Programme was introduced in 2011 many of
the important key compliance milestones had been accomplished
but provided recommendations for further improvement, including
ensuring communication of the Programme was rolled out to
the wider workforce and for the programme to evolve into
a cross-functional issue. The Group has sought to work on the
recommendations and during the year a number of actions
were taken to enhance and further embed the Programme.
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65
Governance Report
Conflicts of interest
The Companies Act 2006 introduced a statutory duty requiring
Directors to avoid situations in which they have or can have a
direct or indirect interest that conflicts or may conflict with the
interests of the Company. This duty is in addition to the existing
duty that a Director owes to the Company to disclose to the
Board any transaction or arrangement under consideration by
the Company. The Company’s Articles of Association include
provisions giving the Directors authority to approve such situations
and to allow conflicts of interest to be dealt with in a similar way
to the position that existed prior to the coming into force of this
legislation. There is no breach of duty if the relevant situation has
been authorised in advance.
The Company Secretary minutes consideration of any conflict or
potential conflict of interest and authorisations granted by the Board,
and maintains a register of conflicts of interest. On an ongoing basis,
the Directors inform the Company Secretary of any new, actual
or potential conflict of interest that may arise or, if there are any
changes in circumstances that may affect an authorisation previously
given. Even when authorisation is given, a Director is not absolved
from his duty to promote the success of the Company.
Governance Report
Accountability
The Board has overall responsibility for ensuring that the Annual
Report and Accounts present a fair, balanced and understandable
assessment of the Group’s position and prospects.
Internal control
The Board is responsible for determining the nature and extent of
the significant risks the Group is willing to take in order to achieve
its strategic objectives and at the same time maintain sound risk
management and internal control systems. The Board has established
a Group-wide system of internal control which identifies, evaluates
and manages the significant risks associated with the Group’s
achievement of its business objectives, with a view to safeguarding
shareholders’ investments and the Group’s assets. This system is
bespoke to the Company’s particular needs and the risks to which
it is exposed and is designed to manage rather than eliminate risk.
Due to the limitations inherent in any system of internal control,
this system provides reasonable, but not absolute, assurance against
material misstatement or loss. The effectiveness of the Group’s
system of internal control is reviewed by the Board annually.
The Board confirms that, throughout the year ended 31 December
2013 and up to the date of approval of this Annual Report and
Accounts, there have been processes in place to identify, evaluate
and manage the significant risks faced by the Group in accordance
with the Turnbull Guidance. The Company is aware that the FRC
has published, in late 2013, a consultation on proposed changes to
the Turnbull Guidance. The Company will review any changes to the
Turnbull Guidance when published and amend its internal control
and risk management policies and procedures accordingly.
The Board has adopted a risk-based approach in establishing the
Group’s system of internal control and in reviewing its effectiveness.
To identify and manage key risks, the Board has: established a
number of Group-wide procedures, policies and standards; set
up a framework for reporting matters of significance; authorised
the Audit Committee to review the Group’s approach to risk
management and the effectiveness of the Group’s financial reporting,
internal control and assurance systems; developed a system of
regular reports from management; and has reserved specific
key matters for its decision. The process is designed to provide
assurance by way of cumulative assessment.
All of the Group’s internal control and corporate governance
policies and procedures are contained in a single document entitled
‘Group Policy Guidelines on Corporate Governance’ with the aim
to promote a culture of pragmatic corporate governance through
raising awareness of the policies and procedures amongst
senior management.
Key elements of the Group’s system of internal control which
have operated throughout the year are:
• Group financial, treasury, operating, compliance and
administrative policies and procedures which incorporate
statements of required behaviour;
• continuous review of safety, operating and financial
performance of the Group’s businesses;
• regular reports to the Board and Group Health, Safety
and Environment Committee on health, safety and
environmental matters;
66
• monitoring by the Board of a comprehensive reporting system,
including monthly results, periodic short-term forecasts,
annual budgets and medium-term plans;
• well-defined procedures for appraisal, approval, control
and monitoring of major capital projects, including acquisitions
and disposals;
• an established methodology for ranking the level of risk in
each of its business operations and the significant risk issues
associated therewith;
• implementation of appropriate strategies to deal with
significant risks, including measures such as insurance and
use of external specialists;
• a centrally coordinated internal audit programme to support
the Board in its role of ensuring a sound control environment;
• regular reports to the Audit Committee on the adequacy and
effectiveness of internal control;
• regular reports to the Projects Assurance Committee
on progress against targets of the Group’s major projects
at Bozshakol and Aktogay; and
• a remuneration policy for executives which motivates them,
without delivering excessive benefits or encouraging
excessive risk-taking.
The Board, in conjunction with management, continues to review
and develop the internal control environment where appropriate.
It is Group policy that all acquired businesses are brought within
the Group’s system of internal control as soon as practicable and
in any event within 12 months of acquisition. ENRC PLC, in which
the Group had a 26% shareholding until 8 November 2013, was
never incorporated into the Group’s system of internal control.
The Group’s approach to risk management and how it profiles the
risks it has identified is set out in the Risk Management Overview
section on pages 18 and 19.
Internal audit
Internal audit advises management on the extent to which systems
of internal control are adequate and effective to manage business
risk, safeguard the Group’s resources, and ensure compliance with
legal and regulatory requirements. It provides objective assurance
on risk and controls to senior management, the Audit Committee
and the Board.
Internal audit’s work is focused on the Group’s significant risks and
the Head of Internal Audit and the Group Risk Manager work
closely when considering the internal audits to be performed. The
mandate and programme of work of the internal audit department
is approved by the Audit Committee. Based on the approved audit
plan, a number of internal audits took place across the Group’s
operations and functions to facilitate improvement of the Group’s
internal controls and report findings to relevant operational
management. The Head of Internal Audit reports regularly to
the Audit Committee and the chairman of the Audit Committee
is responsible for reviewing the remuneration of the Head of
Internal Audit.
The Audit Committee receives reports from the Head of Internal
Audit on the department’s work and findings, and the effectiveness
of internal audits are reviewed and discussed on an annual basis with
the Head of Internal Audit.
Internal audit reports include recommendations to improve internal
controls together with agreed management action plans to resolve
the issues raised. Internal audit follows up on the implementation
of recommendations and reports progress to senior management
and the Audit Committee.
Relations with shareholders
Dialogue with shareholders
The Board recognises the importance of good communications
with shareholders and maintains an active dialogue with its key
financial audiences, including institutional shareholders, sell-side
analysts and potential shareholders. The Chief Executive and
Chief Financial Officer are closely involved in investor relations
and the Head of Corporate Communications has day-to-day
responsibility for such matters.
The executive Directors are available, through the Head of
Corporate Communications, to discuss the concerns of major
shareholders at any time during the year and the Chairman is
available to discuss governance and strategy with major shareholders.
Non-executive Directors make themselves available to attend
meetings with shareholders in order to develop an understanding
of their views. The Company responds as necessary to requests
from individual shareholders on a wide range of issues.
The Company issues quarterly production updates normally in
January, April, July and October and interim management statements
normally in April and October. These, together with copies of
institutional analyst presentations each half year, the Group’s
preliminary and half-yearly results and all announcements issued
to the London Stock Exchange and Hong Kong Stock Exchange
(in English and in Chinese), are available on the Company’s
website (www.kazakhmys.com).
General Meetings
The Notice of Annual General Meeting is circulated to all
shareholders at least 20 business days prior to such a meeting and
it is Company policy not to combine resolutions. All shareholders
are invited to attend the Annual General Meeting where there
is an opportunity for individual shareholders to question the
Chairman and, through him, the chairmen of the principal Board
committees. After the Annual General Meeting, shareholders
can meet informally with the Directors.
Board committees
The four principal committees of the Board are: the Audit; Group
Health, Safety and Environment; Nomination; and Remuneration
Committees. Board committee members are appointed by the
Board upon the recommendation of the Nomination Committee,
which reviews the composition of each committee regularly.
The committee memberships are spread between the independent
non-executive Directors, drawing on each of their relevant
skills and experience.
Committee members are expected to attend each committee
meeting, unless there are exceptional circumstances which prevent
them from doing so. Only members of the committees are entitled
to attend their meetings, but others may attend at the request of
the committee.
The terms of reference of each committee are available on
the Company’s website (www.kazakhmys.com) and on request
from the Company Secretary at the Company’s registered office.
The terms of reference of each committee are reviewed annually.
Board committee membership
The current membership of the Board’s committees is shown
in the table below:
Group
Health,
Safety and
Audit Environment Nomination
Committee Committee Committee
Simon Heale
Oleg Novachuk
Eduard Ogay
Lynda Armstrong
Clinton Dines
Vladimir Kim
Michael Lynch-Bell
Lord Renwick
Charles Watson
–
–
–
–
M
–
C
–
M
M
–
–
M
M
–
–
–
C
Remuneration
Committee
C
–
–
–
–
–
M
M
–
M
–
–
M
–
–
–
C
M
C: Chairman of committee
M: Member of committee
At the Annual General Meeting, the Chairman provides a brief
summary of the Company’s activities for the previous year to
shareholders. All resolutions at the 2013 annual general meeting
were voted on by way of a poll. The procedure for voting on a poll
follows best practice and allows the Company to count all votes
rather than just those of shareholders attending the meeting.
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67
Governance Report
There is regular dialogue with key institutional shareholders,
fund managers and sell-side analysts to discuss strategy, financial
performance and investment activities throughout the Group,
who also from time to time visit the Group’s operations. During
2013, executive Directors and senior management met with
institutional investors in the United Kingdom, continental Europe,
Canada, United States of America, China, Hong Kong and
Singapore, and attended several conferences in the United
Kingdom, Hong Kong and United States of America providing
a comprehensive dialogue with shareholders.
As recommended by the Code, all resolutions were voted
separately and the voting results, which included all votes cast for,
against and those withheld, together with all proxies lodged prior to
the meeting, were announced to the London Stock Exchange and
Hong Kong Stock Exchange and made available on the Company’s
website as soon as practicable after the meeting. As in previous
years, the Form of Proxy clearly advises that a ‘vote withheld’ is
not a vote in law and is not used in calculating the votes for or
against a resolution.
Governance Report
Audit Committee
Responsibilities
The Board relies on the Audit Committee to provide effective
governance over financial reporting, internal control and assurance
processes, together with the identification and management of risk.
The current members of the Committee are:
Michael Lynch-Bell, Chairman
Clinton Dines
Charles Watson
Michael Lynch-Bell, Chairman
My first duty is to thank my predecessor, Simon Heale, for his
contribution to the development of the Committee over the
course of the last six years. As Chairman of the Company,
Simon continues to attend Committee meetings at its invitation
and I value his wise counsel.
During 2013, the Committee has reviewed the Group’s financial
results, including any impairments identified by management,
the Group’s system of internal control, the management of the
Group’s risks, as well as monitoring the internal audit function
and overseeing our relationship with the external auditor.
There have also been a number of transactions which we have
considered including the financial effects of the disposal of the
Group’s interest in ENRC PLC, Ekibastuz GRES-1 LLP and
Kazhydrotechenergo LLP.
In my role as chairman of the Committee I have met with
our external auditors, KPMG, outside of the normal meeting
schedule and with various senior managers to increase my
understanding of the Group. I intend to continue with this
process throughout my chairmanship in order to deepen
my knowledge of the Group, the risks it faces and its internal
control framework.
Finally, I would also like to acknowledge the excellent work of
the Projects Assurance Committee in identifying and monitoring
the activities critical to the successful commissioning of the
Group’s major projects at Bozshakol and Aktogay.
Michael Lynch-Bell
Chairman, Audit Committee
The primary responsibilities of the Committee are set out in the
diagram below. Whilst the Committee has very specific duties set
out in its terms of reference, it serves a much greater purpose in
reassuring shareholders that their interests are properly protected
in respect of the Company’s financial management and reporting,
on which the Committee regularly reports to the Board. The
Committee has delegated responsibility to oversee the Company’s
procedures and systems in relation to risk management, with a
focus on the methodology used by management.
Governance
Michael Lynch-Bell has recent and relevant financial experience;
his biography is set out on page 24. The other members of the
Committee, Clinton Dines and Charles Watson, have broad
commercial experience and knowledge of international businesses
which they bring to the Committee’s deliberations. The Chairman
of the Board, Chief Executive, Chief Financial Officer, Company
Secretary, Head of Internal Audit and the external auditor are
normally invited to attend Committee meetings.
At the end of each meeting the Committee normally meet
separately with both the external auditor and Head of Internal
Audit, without management present, to discuss any matter relating
to its remit and any issues arising from external and internal audits.
Following a formal, competitive tender process for the provision
of external audit services conducted in 2012, the Board approved
the Committee’s recommendation to appoint KPMG Audit Plc
as external auditor of the Group.
KPMG Audit Plc has informed the Company that it wishes to
formally change the entity which conducts the Company’s audit from
KPMG Audit Plc to KPMG LLP. Therefore, KPMG Audit Plc will not
stand for re-appointment at the Company’s forthcoming Annual
General Meeting, and instead KPMG LLP will seek appointment
as the Company’s auditors at this meeting. The Audit Committee
has recommended, and the Board has approved, resolutions to be
proposed at the forthcoming Annual General Meeting to appoint
KPMG LLP as the Company’s auditors and to authorise the
Directors to set their remuneration.
Audit Committee responsibilities
Overseeing the
relationship with the
external auditor
68
Monitoring the
effectiveness of the
Group’s internal
audit function
Reviewing and monitoring
the integrity of
financial reporting by
the Company
Reviewing the Group’s
internal control and risk
management systems
Attendance at Audit Committee meetings
During 2013, there were seven scheduled meetings of the
Audit Committee, including two scheduled meetings which were
convened to discuss one item of business only, the financial
disclosures in the interim management statements, with each
member attending as shown below:
Members
Michael Lynch-Bell
Clinton Dines
Simon Heale1
Charles Watson
1
Committee member since
Attendance at
scheduled
meetings during
2013
27 February 2013
1 October 2009
1 January 2007
24 August 2011
6/6
7/7
4/4
7/7
Simon Heale stood down as chairman of the Committee on 17 May 2013
following his appointment as Chairman of the Company and was succeeded
by Michael Lynch-Bell.
Role of the Audit Committee
Key roles and responsibilities of the Audit Committee include:
A copy of the Committee’s terms of reference are available
on the Company’s website (www.kazakhmys.com).
Activities in 2013
At its meetings in 2013, the Committee considered and discharged
its responsibilities on the following matters:
Financial reporting
• reviewed annual and half-yearly results and interim management
statements, including accounting policies, significant financial
reporting estimates and judgements applied in preparing them
and the transparency and clarity of the disclosures within them;
• received reports from management and the external auditor
on accounting, financial reporting and taxation issues;
• considered impairment reviews performed by management
in relation to the Group’s investments;
• reviewed the methodology for producing the disclosure of
mining reserves and resources and other relevant disclosures
in the Annual Report and Accounts; and
• reviewed the basis for preparing the Group accounts on
a going concern basis.
• reviewed and recommended to the Board amendments
to the Group Treasury Policy;
• reviewed the Group’s processes for disclosing information to the
external auditor and the statement concerning such disclosure in
the Annual Report and Accounts;
• received a presentation on the controls and assurance plan
over mining reserves and resources; and
• received reports from the Projects Assurance Committee.
Risk management
• reviewed the risk management activities undertaken in order
to identify, measure and assess the Group’s significant risks;
• reviewed and challenged the Group’s significant risks identified
by management in the Group risk map, and reviewed the
effectiveness of the Group risk management framework as
described on pages 18 and 19, and reports arising out of the
risk management process; and
• monitored the Group’s significant insurance arrangements and
reviewed the Group’s insurance broking arrangements.
Internal audit
• approved the annual operational plan and reviewed reports
from the internal audit department relating to control matters;
• received a presentation on the results of an internal audit carried
out by GoodCorporation on the Group Anti-Bribery and
Corruption Compliance Programme; and
Governance Report
• monitoring and challenging, where necessary, the integrity of the
financial statements of the annual and half-yearly results, interim
management statements and any other formal announcement
relating to financial performance, including a review of the
financial reporting judgements which they contain;
• reviewing the Company’s internal financial controls, internal
control and risk management systems;
• monitoring the role and effectiveness of the internal
audit function;
• overseeing the work of the Projects Assurance Committee;
• establishing and overseeing the Company’s relationship with the
external auditor, including the monitoring of their independence
and expertise, the terms of reference of their engagement and
fees, and assessing the effectiveness of the audit process;
• agreeing the scope of the external auditor’s annual audit plan and
reviewing the output;
• considering and making recommendations to the Board on the
appointment and re-appointment of the external auditor; and
• reviewing annually the Committee’s own performance,
constitution and terms of reference.
Internal control
• reviewed the design and effectiveness of the Group’s system of
internal control as set out on pages 66 and 67 and the disclosures
made in the Annual Report and Accounts on this matter;
• agreed to engage external specialists to assist the internal audit
department in connection with specialist audits including
anti-bribery and corruption, and health and safety.
External auditor
• approved the terms of engagement of the external auditor, the
fees paid to them and the scope of work carried out by them;
• performed an annual review of the policies on the independence
and objectivity of the external auditor, the use of the external
auditor for non-audit services, and the employment of former
employees of the external auditor;
• reviewed the performance and effectiveness of the external
auditor in respect of the 2012 financial year;
• assessed the independence and objectivity of the external auditor
and in this process reviewed a report from the external auditor
on all relationships that might reasonably have a bearing on their
independence and the audit partner and staff’s objectivity, and the
related safeguards and procedures;
• received reports on the findings of the external auditor during
their half-yearly review and annual audit and reviewed the
recommendations made to management by the external auditor
and management’s responses;
• reviewed the quality assurance processes of the external auditor;
• considered the report of a review by the FRC’s Audit Quality
Review Team of KPMG’s audit of the Company’s financial
statements for the year ended 31 December 2012 and challenged
KPMG on its findings;
• reviewed letters of representation to the external auditor; and
• recommended the re-appointment of the external auditor.
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69
Governance Report
Other matters
• reviewed reports on changes to UK and Kazakhstan tax legislation;
• reviewed the Speak-Up policy as well as the independent and
confidential arrangements in place by which staff may raise
concerns about possible legal, regulatory or other improprieties
in matters of financial reporting and other matters;
• received reports on matters raised via the Speak-Up facilities,
the process for the investigation of those matters raised, the
outcome of the investigation and any actions taken;
• received an update from management on the latest technical
accounting and regulatory issues;
• approved the appointment of the external auditor to provide
non-audit services in relation to the sale of the Group’s interest in
ENRC PLC, Ekibastuz GRES-1 LLP and Kazhydrotechenergo LLP;
• reviewed its terms of reference and the results of the
performance evaluation of the Committee; and
• reviewed the training requirements of the Committee members.
Policy on the provision of non-audit services
The Committee’s policy on the use of the external auditor for
non-audit services includes the identification of non-audit services
which may be provided and those prohibited, and a process through
which other non-audit services may be approved. The policy
requires any new engagement with the external auditor for
non-audit services in excess of £100,000 to be approved in advance
by the Chief Financial Officer and the Committee chairman or a
sub-committee of any two members, with any non-audit services up
to a limit of £100,000 being approved by the Chief Financial Officer.
Any project or engagement with the external auditor in excess of
£20,000 that is not included in the list of those non-audit services
which may be provided by the external auditor must be approved
in advance by the Committee or a sub-committee of any two
members, with any services up to a limit of £20,000 being approved
by the Chief Financial Officer. In addition, any non-audit services in
excess of £100,000 must be subject to a competitive tender process.
The policy requires that non-audit services of the external auditor
will only be used where the Group benefits in a cost-effective
manner and the external auditor maintains the necessary degree of
independence and objectivity. Details of all non-audit services are
reported to the Committee twice a year. The policy is kept under
review and may be amended from time to time as necessary.
Details of the amounts paid to the external auditor for audit and
non-audit services for the year ended 31 December 2013 and
information on the nature of non-audit fees appear in note 13
to the consolidated financial statements on page 128.
Projects Assurance Committee
During 2012, the Audit Committee considered and approved the
establishment of a sub-committee, the Projects Assurance Committee,
for the purpose of assisting the Audit Committee in procuring third
party, independent operational and financial assessments of the
Group’s major growth projects at Bozshakol and Aktogay. The
Projects Assurance Committee currently comprises Charles Watson
(chairman), Oleg Novachuk and Lynda Armstrong and met four times
during 2013. The significant issues the Projects Assurance Committee
considered during 2013 related to reviewing the performance of the
contractor at Bozshakol and Aktogay, the appointment of an additional
contractor at Bozshakol and the monitoring of capital expenditure
at Bozshakol and Aktogay. The chairman of the Projects Assurance
Committee reported on its activities to the next Audit Committee
meeting following each of its meetings.
Significant issues considered by the Committee
The Committee considered, amongst other matters, a number of significant issues in relation to the financial reporting of the Group, including:
Significant issues
Committee actions
Impairments
As the Group’s net asset value was below its market value at
31 December 2013, management performed an impairment
review of certain of the Group’s cash generating units, for
which there were indicators of impairment. The impairment
review resulted in an impairment being recognised in respect
of the full carrying value of the Zhezkazgan Region as well as
on specific assets which had been suspended or their
intended use changed during the year.
The Committee considered papers setting out the results of
the impairment reviews and management’s assessment and
assumptions. Having received input from the external
auditor and challenged the appropriateness of key
assumptions used by management in the discounted cash
flow models and evaluated the sensitivity of the outcomes
of the reviews, the Committee agreed with management’s
assessment and disclosures.
Determination of ore reserves
As a result of the impairment of the Zhezkazgan Region,
management proposed to exclude its ore reserves as they did
not meet the definition of JORC compliant reserves.
70
The Committee considered a paper setting out the results of
management’s assessment. Having received input from the
Group’s mining consultants, IMC, the Committee agreed
with management’s view that the ore reserves of the
Zhezkazgan Region should be excluded from the Group’s
ore reserves as disclosed in the Annual Report and Accounts.
Significant issues
Disability benefits provision
The provision for disability benefits, which is established on an
actuarial basis, was re-assessed by management at 31 December
2013 following the failure of previous insurance arrangements,
the purchase of a new insurance policy covering 2013 claimants,
the addition of new claimants and revisions to the actuarial
assumptions.
Disposal of the Group’s investment in ENRC PLC
Following the Board’s decision to accept the offer from
Eurasian Resources Group B.V. to acquire the Group’s 26%
shareholding in ENRC PLC on 24 June 2013, management
proposed that the investment be reclassified as held for sale
and impaired by $823 million to the net sales proceeds.
This indicated that the investment may have been impaired
prior to acceptance of the offer.
Sale of Ekibastuz GRES-1 LLP and Kazhydrotechenergo LLP
Following the Board’s decision to accept an offer from SamrukEnergo in relation to the sale of the Group’s shareholding in
Ekibastuz GRES-1 LLP and Kazhydrotechenergo LLP on
5 December 2013, management proposed to reclassify the assets
as held for sale and cease to equity account for the Group’s share
of the results of Ekibastuz GRES-1 LLP from that date.
Committee actions
The Committee considered papers prepared by management
outlining the assumptions applied in the actuarial valuation and
the recognition of the liability for future disability payments
for employees covered by previous insurance contracts.
Having challenged management on their proposed approach,
the Committee concurred with management’s proposed
accounting treatment and disclosure.
Having considered the broader risks of the transaction not
proceeding and the fact that the offer did not reflect the
fundamental value of the investment, as assessed by the
Directors and the Group’s advisors, the Committee agreed
with management’s assessment of the reclassification,
impairment and the associated disclosures.
Having considered the likelihood of the transaction
completing within 12 months of the balance sheet date
and having received input from the external auditor,
the Committee agreed with management’s approach.
The Committee considered a paper setting out the facts
surrounding the recoverability of the $48 million of excess
profits tax paid in prior years and concurred with
management’s accounting treatment and disclosure.
Tax contingencies
Owing to the evolving nature of tax legislation in Kazakhstan,
management is required to make judgements and estimates
in relation to tax risks, the outcomes of which can be less
predictable than in many other jurisdictions. The Committee
considered management’s provisions for tax based on its best
estimate of the probable cash payments needed to settle
claims arising from tax audits completed in 2011.
The Committee considered a paper setting out the results
of management’s assessment. Having received input from
the external auditor and challenged the judgements taken,
the Committee agreed with management’s assessment of the
provision to be recognised in respect of tax and uncertain tax
positions, and the associated disclosures.
Going concern
The appropriateness of preparing the Group’s financial
statements on a going concern basis.
Governance Report
Excess profits tax
Owing to uncertainties over the recoverability of $48 million
of excess profits tax paid in prior years due to the right to
a refund being open to further legal challenge by the tax
authorities in Kazakhstan, the Committee considered the
accounting treatment of the refund.
The Committee considered papers prepared by management
and, taking into account the external auditor’s review of the
papers and their assumptions, concluded that management’s
recommendation to prepare the accounts on a going concern
basis was appropriate.
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71
Governance Report
Group Health, Safety and Environment Committee
Responsibilities
Charles Watson, Chairman
Lynda Armstrong
Clinton Dines
Simon Heale
The Committee is primarily responsible for keeping under
review the development and maintenance of a framework of
policies and standards for identifying, assessing, managing and
reporting health, safety and environmental risks and their impacts
on the Group’s activities.
Charles Watson, Chairman
I would like to thank my predecessor, Philip Aiken, for his strong
leadership of the Committee over the last five years. Under his
chairmanship Kazakhmys has made significant strides to improve
health and safety management and develop a safety-first culture.
The Committee was strengthened during the year with the
appointments of Simon Heale and Lynda Armstrong as members,
both of whom bring strong credentials and a challenging and
constructive mindset to the activities of the Committee.
Kazakhmys recognises that the highest practicable standards of
health, safety and environmental practices are vital to its success
and a key responsibility for all employees. The role of the
Committee is to assist the Board in overseeing management’s
processes, standards and strategies for managing health, safety
and environmental commitments and responsibilities.
During the year, the Committee’s agenda covered a range of health,
safety and environmental issues including working at height, roof
collapse, contact with energy sources, ventilation, personal protective
equipment, training and skills, vehicle management, pedestrian safety,
energy use and air emissions. The Committee also addressed
leadership behaviour and cultural change issues during its meetings.
Following my appointment as chairman, I undertook a detailed
review of the future role and direction of the Committee, involving
a questionnaire and interviews with each member, as well as
Oleg Novachuk and Eduard Ogay, to ensure the Committee was
positioned to meet its remit in an effective manner going forward.
This resulted in a number of changes to the format of the
Committee meetings which I hope will enhance further its
performance going forward.
In line with the Committee’s approach to keeping abreast of site
operations and procedures, and furthering its understanding of the
Group’s safety culture, the Committee visited the South Mine,
Konyrat Mine and the Balkhash concentrator in 2013. We met with
locally based staff and contractors to understand better the risks
faced by employees, contractors, the environment and the
Group facilities.
Charles Watson
Chairman, Group Health, Safety and Environment Committee
72
All meetings of the Committee during the year were held in
Kazakhstan and involved meetings with management responsible
for health and safety, with all visits lasting for two or three days.
Attendance at Group Health, Safety and Environment
Committee meetings
There were three scheduled meetings of the Group Health, Safety
and Environment Committee during 2013, with each member
attending as shown below:
Members
Attendance at
scheduled
meetings during
2013
Charles Watson1
Philip Aiken2
Clinton Dines
Lynda Armstrong
Simon Heale
16 November 2011
11 November 2006
25 August 2010
21 October 2013
13 March 2013
3/3
1/1
2/3
1/1
3/3
1
Appointed chairman on 1 June 2013.
2
Stood down as a Director and member of the Committee on 31 August 2013.
Clinton Dines missed one Committee meeting and provided
comments to the Committee chairman and the Company Secretary
on matters to be discussed in advance of the meeting missed.
Role of the Group Health, Safety and Environment Committee
Key roles and responsibilities of the Group Health, Safety and
Environment Committee include:
• keeping under review the development and maintenance of
a framework of policies and standards for managing health,
safety and environmental risks and their impacts on the
Group’s activities;
• reviewing compliance by the Group with relevant health,
safety and environmental legislation;
• assessing the impact of health, safety and environmental
decisions and actions taken by the Group on its reputation,
employees, communities, stakeholders, and ensuring remedial
action is taken where appropriate;
• monitoring and assessing the commitment and behaviour
of management toward managing health, safety and
environmental-related risks;
• reviewing significant safety incidents and considering the
key causes, consequences and ensuring actions and
communications are made by management to prevent similar
incidents occurring in the future;
• facilitate the promotion by management of a culture of care
and sensitivity towards the environments and communities
in which the Group operates;
• making proposals to the Remuneration Committee regarding
appropriate health, safety and environmental performance
objectives for executive Directors and certain senior managers
and, in due course, providing its assessment as to performance
against such objectives;
• reviewing the findings of any internal or external reports on
the Group’s health, safety and environmental systems, assessing
any strategies and action plans developed by management in
response to issues raised and, where appropriate, making
recommendations to the Board on such matters; and
constitution and terms of reference.
The Committee’s terms of reference are available on the
Company’s website (www.kazakhmys.com).
Activities in 2013
At its meetings in 2013, the Committee considered, amongst
other matters, the following:
• reviewed and evaluated fatal and serious incident reports
through the Fatal and Serious Incidents Review Panel;
• reviewed the outcomes of a safety culture assessment
conducted by DuPont;
• monitored compliance with environmental permits;
• reviewed a number of energy saving initiatives at captive
power plants;
• reviewed and evaluated reports on the implementation and
effectiveness of a number of health, safety and environmental
policies and procedures, as well as assessed performance
against the Group’s five year health and safety management
plan and five year environmental plan;
• monitored the performance of DuPont, third party consultant;
• received reports on matters raised and actions taken in respect
of calls made to the Trust Hot Line and the Speak-Up helpline
on the process for the investigation of those matters raised,
the outcome of the investigation and any actions taken;
• reviewed and provided guidance on changes to the Group’s
cardinal rules for underground mining, open cast mining,
smelters, concentrators and power stations;
• provided guidance to management on the development
of a health and safety strategy;
performance evaluation of the Committee; and
The Nomination Committee has had a very busy year, securing the
appointment of two non-executive Directors and recommending to
the Board changes to the composition of the Board committees and
the appointment of a new senior independent director as well as my
recruitment as Chairman. Details of the recruitment process of
Michael Lynch-Bell and myself were set out in the 2012 annual
report and accounts, with other changes to the Board and its
committees set out later in this report.
When recruiting non-executive Directors, the Committee evaluates
the particular skills, knowledge, independence, experience and
diversity, including gender, that would benefit and balance the Board
most appropriately for each appointment. For the recruitment of
Lynda Armstrong, Spencer Stuart, who specialise in the recruitment
of high calibre executive and non-executive candidates, were
engaged to ensure the widest possible pool of candidates was
available to choose from. I managed the relationship with Spencer
Stuart and they provide no other recruitment services to the
Company. Lynda was recommended to the Board on the basis that
she fully met the criteria required, including having sufficient time to
meet the requirements of the role.
The Nomination Committee regularly reviews the composition
of the Board, its committees and the succession planning of the
non-executive Directors in respect of skills, knowledge, experience
and general diversity.
By identifying and recommending candidates with the necessary
range of skills and experience as Directors, the Committee aims to
ensure that the Board and its committees are fit for purpose and
able to meet any challenges that are brought before them.
Simon Heale
Chairman, Nomination Committee
• reviewed the future role and direction of the Committee.
www.kazakhmys.com
73
Governance Report
• monitored and evaluated a number of key safety and
environmental initiatives (working at height, roof fall,
contact with energy sources, ventilation, personal protective
equipment, training and skills, vehicle management and
pedestrian safety);
I became chairman of the Nomination Committee in May 2013,
following my appointment as Chairman of the Company. I would like
to thank my predecessor, Vladimir Kim, for his excellent leadership
of the Committee since Kazakhmys listed in 2005.
Governance Report
Responsibilities
Role of the Nomination Committee
Key roles and responsibilities of the Nomination Committee include:
Michael Lynch-Bell
Lord Renwick
• regularly reviewing the structure, size and composition
(including skills, experience, independence, knowledge and
diversity, including gender) of the Board and making
recommendations to the Board with regard to any changes;
The Committee is primarily responsible for leading the process
for Board appointments and for keeping under review the balance
of skills, experience, independence, knowledge and diversity,
including gender, on the Board to ensure the orderly evolution
of the membership of the Board.
The Committee, which provides a formal and transparent
procedure for the appointment of new Directors to the Board,
generally consults with external consultants and advisers on
prospective Board appointments. The Committee keeps under
review the planned and progressive refreshing of the Board and
its committees, prepares a description of the specific experience
and skills needed for an appointment, considers candidates put
forward by external consultants, and recommends to the Board
the appointment of all Directors after having met short-listed
candidates. It also supervises and puts into place succession planning
for non-executive Directors and certain senior managers and,
where appropriate, recommends to the Board Directors’
conflicts of interest for authorisation.
Governance
The Committee is chaired by the Chairman of the Company, whilst
he is not deemed to be independent, the majority of the members
of the Committee are independent non-executive Directors in
accordance with the provisions of the Code. For matters which
concern the Chairman, he would remove himself from meetings,
and Michael Lynch-Bell would chair.
Attendance at Nomination Committee meetings
There were three scheduled meetings of the Nomination
Committee during 2013 with each member attending as
shown below:
Members
Simon Heale
Philip Aiken1
Vladimir Kim2
Michael Lynch-Bell
Lord Renwick
• giving full consideration to succession planning for Directors
and certain senior managers, taking into account the challenges
and opportunities facing the Company, and the skills and
expertise needed on the Board in the future;
• responsibility for identifying and nominating for the approval
of the Board, candidates to fill Board vacancies as and when
they arise;
• before any appointment is made by the Board, evaluating the
balance of skills, experience, independence, knowledge and
diversity, including gender, on the Board, and, in light of this
evaluation, preparing a description of the role and capabilities
required for a particular appointment;
• keeping under review the Directors’ existing and any new
conflicts of interest and making recommendations as to
whether the conflict should be authorised;
• keeping under review the leadership needs of the Company,
both executive and non-executive, with a view to ensuring the
continued ability of the organisation to compete effectively
in the marketplace;
• reviewing the results of the Board performance evaluation
process that relates to the composition of the Board and
reviewing annually the time commitments required from
the non-executive Directors to fulfil their duties;
constitution and terms of reference;
• formulating Board succession planning;
Attendance at
scheduled
meetings during
2013
1 January 2007
1 November 2006
1 October 2005
1 September 2013
1 December 2005
3/3
2/2
1/1
1/1
3/3
1
Stood down as a Director and a member of the Committee on 31 August 2013.
2
Stood down as a member of the Committee on 17 May 2013.
• recommending to the Board suitable candidates for the role
of Senior Independent Director, and membership of the
Audit, Group Health, Safety and Environment, and
Remuneration Committees;
• recommending the re-appointment of any non-executive
Director at the conclusion of their specified term of office
having given regard to their performance and ability to continue
to contribute to the Board in the light of the skills, experience,
independence and knowledge required; and
• recommending the re-election by shareholders of any Director
in accordance with the provisions of the Code having due regard
to their performance and ability to continue to contribute to the
Board in the light of the skills, experience and knowledge required
and the need for progressive refreshing of the Board.
The Committee’s terms of reference are available on the
Company’s website (www.kazakhmys.com).
74
Activities in 2013
At its meetings in 2013, the Committee considered,
amongst other matters, the following:
• the appointment of a new non-executive Chairman;
• following Philip Aiken standing down as a Director,
the appointment of Michael Lynch-Bell as Senior
Independent Director;
• the appointments of Simon Heale as chairman of the
Nomination Committee and as a member of the Group Health,
Safety and Environment Committee, Michael Lynch-Bell as
chairman of the Audit Committee and a member of the
Nomination Committee, and Charles Watson as chairman
of the Group Health, Safety and Environment Committee
and a member of the Remuneration Committee;
• following extensive research into potential candidates, Lynda
Armstrong was appointed a non-executive Director and a
member of the Remuneration Committee in October 2013;
• in accordance with the Company’s Articles of Association,
recommended to the Board the election of Michael Lynch-Bell
and re-election of all other Directors by shareholders at the 2013
annual general meeting having due regard to the performance
and ability for each Director to continue to contribute to the
Board and its committees;
• reviewed the time commitment required by non-executive
Directors to fulfil their duties; and
performance evaluation of the Committee.
Recruitment process
The key stages of the recruitment process are set out below.
Recruitment process
Vacancy identified
Prepare candidate profile and position specification
Enlist search agency
Long list of candidates
Individual interviews with chairman of the
Interviews with members of the Nomination Committee
and Chief Executive
Short list of candidates
Recommendation by the Nomination Committee
to the Board
Appointment approved by Board
Governance Report
Lynda Armstrong – New independent non-executive Director
Following Philip Aiken standing down as a Director, the Nomination
Committee, led by the chairman, commenced the process to identify
a new non-executive Director. Spencer Stuart was appointed as the
executive search consultant to assist the Committee in this process.
Spencer Stuart has no other connection with the Company.
A formal, rigorous and transparent search process was put in place
with a candidate profile and position specification prepared, including
time commitment expected and experience required. Spencer
Stuart presented the chairman with a list of candidates and the
chairman held interviews with a number of candidates. A short list
of three candidates was identified and interviews were conducted
with the chairman, the other members of the Committee and the
Chief Executive.
The Committee put forward their recommendation to the Board
and the Board approved the appointment of Lynda Armstrong with
effect from 21 October 2013. In accordance with the Company’s
Articles of Association and the Code, Lynda Armstrong will submit
herself for election by shareholders at the forthcoming Annual
General Meeting.
www.kazakhmys.com
75
Governance Report
Remuneration Report
'
LUHFWHGE\VWUDWHJ\
Policy Report
This part of the Directors’ Remuneration Report sets out the
remuneration policy for the Company and has been prepared in
accordance with The Large and Medium-sized Companies and
Groups (Accounts and Reports) (Amendment) Regulations 2013.
The policy has been developed taking close account of the principles
of the UK Corporate Governance Code in relation to remuneration.
The Committee also takes significant account of guidelines issued
by the ABI, ISS and other shareholder bodies when setting the
remuneration framework. It also seeks to maintain an active and
productive dialogue with investors on developments in the
remuneration aspects of corporate governance generally and any
changes to the Company’s executive pay arrangements in particular.
The Policy Report will be put to a binding shareholder vote at the
Annual General Meeting on 8 May 2014 and, subject to the receiving
of majority shareholder support, the policy will operate formally
from the date of approval. However, in practice, it is intended that
the policy will be applicable to the whole of the 2014 financial year
and will remain applicable throughout the three-year policy period
commencing from the effective date.
Remuneration principles
The Group’s success depends on the performance and
commitment of its employees. Kazakhmys’ approach toward
executive performance, reward and benefits supports and
drives its strategy and business objectives and reinforces its
values in the context of appropriate risk management.
The Committee seeks to ensure that the Company’s remuneration
policies and practices:
• facilitate the recruitment, retention and motivation of high
calibre executives with the appropriate skills to implement
the Group’s strategy and business objectives;
• provide a strong and demonstrable link between incentives
and the Group’s strategy and business objectives;
• set a performance-biased framework for remuneration which
is consistent with the Group’s scale and unique circumstances,
and which enables executive Directors and certain senior
managers to share in the long-term success of the Group,
without delivering excessive benefits or encouraging
short-term measures or excessive risk taking; and
• are aligned to shareholder interests.
The strategy for executive Director remuneration is to provide
a balanced package with a high proportion of total remuneration
being awarded through performance-related elements.
Remuneration Policy table
Salary
Benefits
Purpose
and link
to strategy
To attract and maintain high calibre executives taking account of
market levels at the date of appointment and on subsequent review
Provide market competitive benefits to help recruit
and retain high calibre executives
Operation
Reviewed annually, effective 1 January
Provision of benefits such as:
Any increases take account of:
• Private medical insurance
• Company and individual performance
• Car and driver
• Skill set and experience of the executive
• Relocation assistance
• External indicators such as inflation and market conditions
• All employee share schemes
• Remuneration levels of Group employees, particularly in the UK
• Travel and related expenses
Where no pension provision is provided an adjustment will be
made to salary
Additional benefits such as pension and life
assurance may be provided from time to time.
The Committee will consider whether the payment
of any additional benefits is appropriate and in line
with market practice when determining whether
and at what level they are paid
No prescribed maximum annual increase
Cost of benefits is not pre-determined
Maximum
Salary reviews take account of Company and individual performance
The Committee is guided by the general increase for the broader
employee population, particularly in the UK, but on occasions may
need to recognise, for example, development in role, change in
responsibility, and/or specific retention issues as well as the
market context
The Committee has the flexibility to set the salary of a new hire
at a discount to the market level initially, with a series of planned
increases implemented over the following few years to bring the
salary to the desired positioning, subject to individual performance
76
How the views of shareholders are taken into account
The Remuneration Committee actively seeks to engage with
shareholders and values highly the contribution their views can
make in the process of formulating remuneration policy decisions.
The Committee actively considers feedback received from
shareholders prior to and following each annual general meeting.
It also actively monitors guidance and directional themes
emerging from institutional shareholder bodies on the subject
of executive remuneration.
This feedback, plus any emerging relevant guidance, is considered
as part of the Company’s annual review of remuneration policy.
In addition, when it is proposed that any material changes are to be
made to the remuneration policy, the Remuneration Committee
chairman will inform institutional shareholders and shareholder
bodies of these in advance, and will seek feedback which will be
considered closely by the Committee.
Details of votes cast for and against the resolution to approve last
year’s remuneration report are provided in the Annual Report
on Remuneration.
Consideration of employment conditions elsewhere in the Group
The Company does not formally consult with employees on executive
remuneration. However, when setting the remuneration policy for
executive Directors, the Committee takes into account the overall
approach to reward for, and the pay and employment conditions of,
other employees in the Group, particularly those in the UK.
Management of risk in remuneration arrangements
The Committee takes seriously the issue of balancing risk and
reward, an area that is a key focus for Kazakhmys’ investors,
stakeholders and regulators. The Committee remains satisfied that
the remuneration policy is aligned with the long-term needs of the
business and that incentive quantum, structure and objectives do
not encourage short-term measures or excessive risk taking.
Details of how the Committee has helped to ensure that risk
is appropriately mitigated during the year under review are
provided in the Annual Report on Remuneration.
Remuneration Policy table
The table below summarises the key aspects of the Company’s
remuneration policy for executive Directors. The table should
be read in conjunction with the rest of the Policy Report.
Long Term Incentive Plan
All Employee Share Plans
Incentivise the delivery of annual objectives
consistent with the Group’s strategy, without
encouraging short-term measures or excessive
risk-taking
Incentivise long-term value creation and
alignment with longer-term returns to
shareholders
Encourages long-term shareholding in
the Company
Not pensionable
Clawback facility to take account of material
and exceptional adverse circumstances which
may arise after the payment of the bonus which
makes the payment of that bonus unwarranted
Normally granted annually, awards under the
Long Term Incentive Plan are rights to receive
nil-cost shares, subject to continued
employment and relative TSR performance
measured over a minimum three-year period
Opportunity to participate in UK and
International Sharesave and Share Incentive Plans
on the same terms as other eligible employees
• Payments determined on the basis of
a mixture of:
Shares arising from an LTIP award must be held
for a period of five years from the date of grant
– Operational performance
– Financial performance
– Strategic developments
Payments scaled back in the absence of an
improvement in the Group’s safety performance
The Committee obtains independent external
advice to assess whether the Company has met
the TSR performance condition at the end of
the relevant period
Governance Report
Annual Bonus Plan
Provides all employees with the opportunity to
become owners in the Company on similar terms
Significant tax benefits in the UK subject to
satisfying certain HMRC requirements. The
Plans can only operate on an “all employee”/
equal terms basis. The plan operates on a
non-tax favoured basis outside the UK
as appropriate
There are no post grant performance targets
applicable to awards
The composition of the TSR comparator group
is reviewed at least annually by the Committee
Targets set by reference to the financial and
operating plans
Maximum bonus potential of 200% of
salary currently applying only to the CEO,
for the achievement of stretching
performance objectives
Maximum of 250% of salary per annum
Normal award policy currently set at 200%
of salary per annum
The maximum participation level (for UK-based
employees) is as per HMRC limits (see Annual
Report on Remuneration for current
maximum limits)
Target bonus no higher than 100% of
salary currently applying only to the CEO
Bonus starts to earn at a threshold level
(where 0% of salary is payable) and rises
on a straight line basis
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77
Governance Report
Remuneration Report continued
Bonus Plan and Long Term Incentive Plan flexibility
The Committee will operate the annual bonus plan and LTIP
according to the rules of each respective plan and consistent with
normal market practice and the Listing Rules, including flexibility
in a number of regards. How the Committee will retain
flexibility includes:
• When to make awards and payments.
• How to determine the size of an award, a payment,
or when and how much of an award should vest.
• Who receives an award or payment.
• How to deal with a change of control or restructuring
of the Group.
• Whether an executive Director or a senior manager is a good/
bad leaver for incentive plan purposes and whether and what
proportion of awards vest at the time of leaving or at the
original vesting date(s).
• How and whether an award may be adjusted in certain
circumstances (e.g. for a rights issue, a corporate restructuring
or for special dividends).
• What the weighting, measures and targets should be for the
annual bonus plan and LTIP from year to year.
The Committee also retains the ability within the policy to adjust
targets and/or set different measures, and to alter weightings for
the annual bonus plan and to adjust targets for the LTIP, if events
happen that cause it to determine that the conditions are unable
to fulfil their original intended purpose.
The Committee will consult with shareholders in the event
of material application of discretion.
All historic awards that were granted but remain outstanding
(detailed on page 86 of the Annual Report on Remuneration),
remain eligible to vest based on their original award terms.
Choice of performance measures and approach to target setting
In determining the levels of executive reward, the Committee
continues to place considerable emphasis on ensuring a strong and
demonstrable link between actual remuneration received, and the
achievement of Kazakhmys’ strategic and business objectives. The
Committee sets stretching performance objectives for executive
Directors and certain senior managers. To achieve these objectives
and deliver performance requires outstanding business management
and strategic execution.
The annual bonus plan performance targets are therefore based
on three measures with a clear alignment to the Group’s KPIs and
strategic priorities. As safety is a key priority of the Group, awards
are also subject to a safety override ensuring that payouts will
be scaled back in the absence of improvement in the Group’s
safety performance.
The LTIP provides a focus on delivering superior returns to
shareholders by providing rewards for longer-term shareholder
return outperformance as measured by the Company’s total
shareholder return against a comparator group of selected
companies. The Committee continues to believe that TSR remains
an appropriate performance target as it endorses consistency in the
remuneration policy and provides a clear alignment of interests with
shareholders. In addition, TSR ensures a degree of risk management
as it, through share price, reflects both underlying financial
performance and the market’s assessment of the quality and
sustainability of the Company’s earnings.
78
Further details of the annual bonus measures to be used for 2014
are set out in the Annual Report on Remuneration. The Committee
will assess performance against the 2014 measures utilising a scoring
system of 0-4 where 0 represents 0% bonus and rising in equal
increments so that a maximum bonus is payable for a score of 4.
Details of the assessment for 2014 will be disclosed in next year’s
Annual Report on Remuneration along with details of the payments
resulting. However, details relating to strategy and restructuring will
not be disclosed if it is felt that such disclosures remain commercially
sensitive at that point.
The targets for awards to be granted under the LTIP in 2014
will be consistent with the policy set out above and are set out
in the Annual Report on Remuneration.
Shareholding guidelines
All executive Directors are expected to hold shares equivalent in
value to a minimum of 200% of their base salary within a five-year
period from their date of appointment. The relevant salary is the
salary at the date of appointment and the market value is
measured at the current date.
Executive Directors are required to hold shares arising from
an LTIP award for a period of five years from the date of grant,
with only those shares required to cover a tax liability on exercise
of an LTIP award permitted to be sold.
Differences in remuneration policy for executive Directors
compared to other employees
The Committee considers the pay structures across the wider
Group workforce when setting the remuneration policy for
executive Directors and, in particular, basic pay increases in the last
few years have been limited to those which employees in the UK
have received. The key difference is that, overall, the remuneration
policy for executive Directors is more heavily weighted towards
variable pay than for other employees. In particular, long-term
incentives are provided only to the most senior executives as they
are reserved for those considered to have the greatest potential
to influence overall levels of performance.
The remuneration for senior managers below Board level is
broadly consistent with that followed at executive Director level.
To encourage share ownership on the part of the most senior
managers below Board level they are eligible to receive a maximum
bonus potential of up to 150% of base salary with an on-target
bonus potential of 75% of base salary, one-third of which is deferred
and invested in the Company’s shares. Provided they remain in
employment, the shares will be released after two years. Senior
managers are also eligible to receive awards under the LTIP and
the performance conditions for LTIP awards are the same as
those which apply to executive Directors.
Reward scenarios
The balance between fixed and variable elements of remuneration
changes with performance. The remuneration policy results in a
significant proportion of remuneration received by executive
Directors being dependent on Company performance. Based
on expected values at target and the average of the different
remuneration elements for each executive Director, the intended
mix between fixed and variable for Oleg Novachuk and Eduard Ogay
is that around 55% to 60% of remuneration earned is performancerelated. At maximum, the weighting of performance-related
remuneration increases to around 75% to 80% of remuneration
earned. This mix is shown in the chart opposite. This chart is
indicative as no assumed share price movement has been included.
operation of the Company. These payments would not exceed
what is felt to be a fair estimate of remuneration lost when leaving
the former employer and would reflect (as far as possible) the
nature and time horizons attaching to that remuneration and the
impact of any performance conditions. Shareholders will be
informed of any such payments at the time of appointment.
Maximum potential remuneration
£’000
5,000
4,000
3,000
40%
2,000
23%
48%
1,000
0
38%
40%
100%
39%
20%
Below
target
On-target
Maximum
27%
27%
28%
100%
46%
24%
Below
target
On-target
Maximum
Oleg Novachuk
Fixed pay
Annual bonus
Eduard Ogay
LTIP
The basis of calculation and key assumptions used to complete
the charts above is as follows:
• Below target – only fixed pay is payable i.e. base salary and
benefits. Base salary levels (on which other elements of the
remuneration package are calculated) are based on those applying
for 2014 and benefits are based on the estimated cash cost to
the Company or the taxable value to the executive Director.
• On-target – fixed pay plus 50% of maximum annual bonus
payout and a LTIP award with a face value of 200% of base salary
(in line with the normal grant policy) vests at 30% of maximum,
being the threshold level of vesting.
The chart below sets out the actual remuneration for 2013.
£’000
2,000
1,600
1,200
800
41%
30%
400
0
Fixed pay
59%
70%
Actual
Actual
Oleg Novachuk
Eduard Ogay
Annual bonus
1 No LTIP awards vested in 2013.
Recruitment and appointment policy
The remuneration package for a new executive Director will
be set in accordance with the terms of the Company’s approved
remuneration policy in force at the time of appointment. The
Committee may offer, in addition, certain cash or share-based
elements for the sole purposes of buying out existing awards. Any
such payments would be based solely on remuneration relinquished
when leaving the former employer and would be used for the
specific purpose of recruiting an executive Director key to the
The Committee has the flexibility to set the salary of a new hire
at a discount to the market level initially, with a series of planned
increases implemented over the following few years to bring the
salary to the desired positioning, subject to individual performance.
For external and internal appointments, the Committee may
agree that the Company will meet certain relocation expenses
as appropriate. In addition, the Committee may agree to provide
for tax equalisation for any new appointment.
For the appointment of a new Chairman or non-executive Director,
the fee arrangement would be set in accordance with the approved
remuneration policy in force at that time.
Service contracts
Service contracts normally continue until the executive Director’s
agreed retirement date or such other date as the parties agree.
The Company’s policy is that executive Directors will be employed
on a contract that can be terminated by the Company on giving no
more than one year’s notice, with the executive Director required
to give up to six months’ notice of termination. The Committee will,
consistent with best practice, and the interests of the Company
and its shareholders, seek to minimise termination payments.
A Director’s service contract may be terminated without notice
and without any further payment or compensation, except for
sums earned up to the date of termination, on the occurrence of
certain events, such as gross misconduct. The circumstances of the
termination (taking into account the individual’s performance) are
taken into account by the Committee when determining amounts
payable as a result of termination. The Committee’s normal policy
on termination is to make phased compensatory payments and to
stop or reduce such payments to former executive Directors
where they receive remuneration from other employment during
the notice period (where this is consistent with local employment
legislation and market practice). Any share-based entitlements
granted under the Company’s share plans will be determined on
the basis of the relevant plan rules. The default treatment is that
any outstanding awards lapse on cessation of employment.
However, under the rules of the LTIP, in certain prescribed
circumstances, such as death, redundancy, disability, retirement,
or other circumstances at the discretion of the Committee
(taking into account the individual’s performance and the reasons
for their departure), ‘good leaver’ status can be applied. In these
circumstances a participant’s awards vest on a time pro-rata basis
subject to the satisfaction of the relevant performance criteria with
the balance of the awards lapsing. The Committee retains discretion
to decide not to pro-rate if it is inappropriate to do so in particular
circumstances. If, however, the termination of employment is not
for one of the specified reasons, and the Committee does not
exercise its discretion to allow an award to vest, a participant’s
full awards lapse.
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79
Governance Report
• Maximum – fixed pay plus 100% of maximum annual bonus
payout and a LTIP with a face value of 200% of base salary
vests at 100%.
In the case of an internal executive appointment, any variable pay
element awarded in respect of the prior role will be allowed to
pay out according to its existing terms, adjusted as relevant to
take into account the appointment. In addition, any other ongoing
remuneration obligations existing prior to appointment will continue.
Governance Report
Provision
Summary terms
Notice period
Up to 12 months
Termination
payment
Base salary plus benefits. Payments will normally
be paid monthly and be subject to mitigation
(where this is consistent with local employment
legislation and market practice)
Remuneration
entitlements
A pro-rata bonus may also become payable for
the period of active service along with, under
the rules, vesting of outstanding share awards
(in certain circumstances – see above).
In all cases performance targets will apply
Non-executive Director fees
Fees for the non-executive Directors are determined by the Board
as a whole, upon the recommendation of the executive Directors.
The policy on non-executive Directors’ fees is:
Purpose
and link to
strategy
To be sufficient to attract, motivate and retain
world class talent necessary to contribute to
a high performing Board
Operation
Fees are determined by the Board, within the limits
set out in the Company’s Articles of Association, with
non-executive Directors abstaining from any discussion
or decision on their fees
The Board takes account of recognised best practice
standards for such positions when determining the
fee level and structure
The contract of Oleg Novachuk is terminable by either the
Company or the executive on three months’ notice. This was
granted to him on 26 September 2005. The Company reserves
the right on termination to make phased payments which are paid
in monthly instalments and subject to mitigation through a legal
obligation on the part of the outgoing executive Director to seek
new employment.
Fees are paid monthly in cash. Non-executive Directors,
except Vladimir Kim, do not participate in any of the
Company’s incentive arrangements or receive any
pension provision
The non-executive Directors receive a base fee, with
additional fees payable for chairmanship and membership
of the Company’s key committees and for performing the
Senior Independent Director role. In addition to his base
fee, Vladimir Kim receives a salary of £780,000 per annum
and is entitled to a discretionary annual cash bonus of up
to 120% of salary as executive chairman of Kazakhmys
Corporation LLC. The salary and maximum bonus
entitlement of Vladimir Kim are reviewed on an annual basis
As Eduard Ogay’s operational duties lie in Kazakhstan, he has a
Kazakhstan-based contract of employment granted on 23 January
2012 by Kazakhmys Corporation LLC, which entitles him to six
months’ notice of termination from that company or three months’
notice of termination from him. He also has an appointment letter
with the Company dated 22 March 2012 in respect of his
appointment as an executive Director of the Company which is
coterminous with his Kazakhstan contract, but also capable of
termination in its own right without compensation.
Chairman and other non-executive Directors’
letters of appointment
The Chairman and other non-executive Directors do not have
service contracts, but each has a letter of appointment with the
Company. Each letter of appointment provides for a one-month
notice period other than for the Chairman, who has a three-month
notice period. Non-executive Directors are normally appointed for
two consecutive three-year terms, with any third term of three
years being subject to rigorous review and taking into account
the need progressively to refresh the Board.
Chairman’s fee
The fee for the Chairman is determined by the Committee, with
the Chairman abstaining from any discussion or decision on his fee,
and reflects the commitment, demands and responsibility of the
role. The fee is paid monthly in cash inclusive of all committee roles
and is not performance-related or pensionable. Limited benefits
relating to travel, accommodation and meals for the Chairman
and his spouse may also be payable in certain circumstances.
The Chairman receives a fee of £300,000 per annum, which
he has proposed will be reduced to £275,000 per annum from
1 April 2014. Whilst the fee will not be further varied in 2014 from
this level, it may be variable during the remainder of the three-year
period that the remuneration policy operates to ensure it continues
to appropriately recognise the requirements of the role.
The fee levels are reviewed on a periodic basis, with
reference to the time commitment and responsibilities
of the role and market levels in companies of comparable
size and complexity
Limited benefits relating to travel, accommodation and
meals for non-executive Directors and their spouses
may also be payable in certain circumstances
Fee levels
Fees (per annum) from 1 January 2014 are:
• Non-executive Director base fee: £84,000
• Senior Independent Director: £12,000
• Chairs of the Audit and Group HSE
Committees: £15,000
• Chair of Projects Assurance Committee: £12,000
• Chair of the Remuneration Committee: £8,000
• Member of the Group HSE Committee: £9,000
• Member of the Audit Committee: £7,500
• Member of the Projects Assurance Committee: £6,000
• Member of the Remuneration Committee: £4,000
The above fee levels may be varied (either up or down)
during the three year period that the remuneration policy
operates to ensure they continue to appropriately recognise
the time commitment of the role, increases or decreases to
fee levels for non-executive directors in general and fee
levels in companies of a similar size and complexity
The fees paid to the non-executive Directors for
chairing and being members of committees and of the
Senior Independent Directors were reviewed in 2013,
resulting in the total fees payable being reduced by
around 4% per annum
The Board has been taking measures to improve the
market capitalisation of the Company. Non-executive
Director fees will be further reviewed during 2014 in
relation to progress towards that objective
80
Policy on external appointments
The Committee believes that the Company can benefit from
executive Directors holding one approved non-executive
directorship of another company, offering executive Directors the
opportunity to broaden their experience and knowledge. Company
policy is to allow executive Directors to retain fees paid from any
such appointment. No executive Director currently holds a
non-executive directorship of another company.
Annual Report on Remuneration
This part of the report has been prepared in accordance with
Part 4 of The Large and Medium-sized Companies and Groups
(Accounts and Reports) (Amendment) Regulations 2013 and
9.8.6R of the Listing Rules. The Annual Remuneration Report
will be put to an advisory shareholder vote at the Annual General
Meeting on 8 May 2014.
Role of the Remuneration Committee
The Committee is primarily responsible for determining and
recommending to the Board the framework for executive
remuneration and for determining, on behalf of the Board, the
remuneration of executive Directors and certain senior managers.
The Committee’s full terms of reference are available on the
Company’s website. The Committee’s principal responsibilities
are summarised below:
• ensuring that the remuneration policy is appropriate and
consistent with effective risk management;
• within the agreed framework, setting and determining the
total individual remuneration arrangements for executive
Directors and certain senior managers, giving due regard to
individual and Company performance, and remuneration
trends across the Group;
• approving the design of, and determining the targets for,
any performance-related plans and the total annual payments
made under such plans to executive Directors and certain
senior managers;
• determining any share incentive plan performance targets; and
• determining the terms of employment and remuneration
of each executive Director and certain senior managers,
including recruitment and termination arrangements.
Composition of the Remuneration Committee
The members of the Committee during 2013 were Lord Renwick
(Chairman), Philip Aiken who stood down as a Director on
31 August 2013 and Simon Heale. Charles Watson and Lynda
Armstrong were appointed members of the Committee on
17 May 2013 and 21 October 2013, respectively. The Chief
Executive is normally invited to attend meetings to provide
information and advice to the Committee to enable it to make
informed decisions. He is, however, specifically excluded from
any matter concerning his own remuneration. Representatives of
New Bridge Street, the Committee’s retained adviser, also attend
meetings by invitation. The Company Secretary attends meetings
as secretary to the Committee.
Committee
member since
Attendance
at full
meetings
during 2013
Lord Renwick of Clifton, KCMG 1 December 2005
1 November 2006
Philip Aiken AM1
Simon Heale
1 January 2007
Charles Watson
17 May 2013
Lynda Armstrong OBE
21 October 2013
4/4
2/2
4/4
3/3
1/1
Members
1
Stood down from the Committee on 31 August 2013.
After each meeting, the chairman of the Committee presented
a report on its activities to the full Board.
Committee activities
In line with its remit, the following were considered, amongst
other matters, by the Committee during the year:
• reviewed the current trends in remuneration practice and
updated UK governance requirements, including assessing
Kazakhmys’ compliance with regulations published by the
Department for Business, Innovation and Skills on narrative
reporting and executive remuneration and institutional investors’
current guidelines on executive compensation;
• engaged institutional shareholders and shareholder bodies
on the Company’s remuneration policy;
• reviewed annual general meeting outcome and feedback
from institutional shareholders and shareholder bodies, giving
consideration to the implications for future remuneration policy;
• reviewed and agreed the exit terms of Matthew Hird upon his
departure as Chief Financial Officer and determined the terms
of employment and remuneration of Andrew Southam as the
new Chief Financial Officer;
• set, reviewed and agreed to approve individual remuneration
arrangements for executive Directors and certain
senior managers;
• performed an oversight role on the remuneration of certain
senior managers immediately below Board level;
• reviewed and agreed to amend the performance elements
of the annual bonus plan for 2014;
• assessed the level of achievement against objectives under
the annual bonus plan and LTIP;
• considered and approved plan design, performance measures
and targets to be used under the LTIP;
• approved shareholding guidelines for executive Directors;
• reviewed and amended the list of comparator companies
for the LTIP;
• reviewed and approved the Directors’ Remuneration
Report; and
• reviewed the Committee’s performance and its terms
of reference.
www.kazakhmys.com
81
Governance Report
• determining and agreeing with the Board the framework for
executive remuneration that ensures executive Directors and
certain senior managers are provided with appropriate incentives
to encourage enhanced performance and are rewarded in a fair
and responsible manner for their individual contribution towards
the success of the Company;
Attendance at Remuneration Committee meetings
The Committee met four times in 2013, with each member
attending as follows:
Governance Report
Priorities for 2014
For the coming year it is anticipated that the Committee will
focus on the following areas:
• supporting the Group’s strategy and business objectives;
• ensuring compliance with regulatory requirements;
• reviewing and assessing the ongoing appropriateness of current
executive remuneration plan design and targets;
• ongoing training of Committee members; and
• ensuring that remuneration arrangements continue to attract,
motivate and retain executive Directors and senior managers,
and reward Company performance, with a focus on maintaining
the link between performance and reward, whilst maintaining
a prudent approach to cost and the risk to the business.
Management of risk in remuneration arrangements
In 2012, the Committee commissioned a detailed assessment of the
risk environment surrounding the Company’s current remuneration
arrangements for executive Directors and certain senior managers.
The assessment determined that whilst remuneration arrangements
were broadly compatible with Kazakhmys’ risk policies and systems,
a number of areas could be considered further, including keeping
under review the performance condition of the LTIP and the need
to introduce a deferral mechanism for the annual bonus plan in the
event of a further executive Director being appointed. Overall,
the Committee remains satisfied that the remuneration policy is
aligned with the long-term needs of the business and that incentive
quantum, structure and objectives do not encourage short-term
measures or excessive risk taking.
The Committee draws upon the relevant experience and
knowledge of its members to ensure that it benefits from the
positions they hold at the Company. These include the fact that
Simon Heale is Chairman and Charles Watson is chairman of
the Group Health, Safety and Environment Committee and the
Projects Assurance Committee. The Chief Executive also provides
a link to the Executive Committee. The leveraging of such
experience and knowledge enables the Committee to have an
oversight of risk factors that may be relevant to remuneration
arrangements and target setting specifically.
External adviser
The Committee has authority to obtain the advice of external
independent remuneration consultants. It is solely responsible for
their appointment, retention and termination and for approval of
the basis of their fees and other terms. During 2013, the Committee
received advice on executive compensation, performance-related
pay schemes and equity-based incentive schemes from New Bridge
Street, a trading name of Aon Hewitt Limited (an Aon plc company).
New Bridge Street also provides advice to the Company on
remuneration matters for senior employees including benchmarking
of remuneration and equity-based incentives and on remuneration
matters relating to non-executive Directors. No other company
within Aon plc provides other services to the Company. The terms
of engagement between the Committee and New Bridge Street
are available on request. The total fees paid to New Bridge Street
in respect of its services during the year was £51,685. New Bridge
Street is a signatory to the Remuneration Consultants Group Code
of Conduct. The Committee regularly reviews the external advisor
relationship and is comfortable that New Bridge Street’s advice
remains objective and independent.
82
Implementation of Remuneration Policy for 2014
Salary
No increases were made to executive Directors’ base salaries
in 2012 or 2013. The Remuneration Committee has considered
pay increases for the executive Directors and certain senior
managers for 2014. In determining these salaries, the Remuneration
Committee took into consideration, particularly, the experience,
performance, and the internal and external relative positioning
for total reward of the individuals, and also took into account the
average budgeted increase in base salaries of the Group’s workforce
in 2014 which are expected to be within local inflation levels and
of the UK workforce of 1.85%. As a result of these considerations
and the emphasis on salary restraint from shareholders, the
Remuneration Committee (in consultation with Oleg Novachuk
(Chief Executive)) determined that the base salaries of
Oleg Novachuk, Eduard Ogay and certain senior managers
would not be increased in 2014. In addition, there would be
no increase in the salary paid to Vladimir Kim as executive
chairman of Kazakhmys Corporation LLC.
The base salaries for the executive Directors paid for 2012
and 2013, and payable for 2014, are shown in the table below:
Executive Directors’ base salaries
2012
£000
Oleg
Novachuk
1
1.71
2013
£000
%
increase
2014
£000
%
increase
856
Nil
856
Nil
Oleg Novachuk last received an increase in his base salary with effect from 1 July
2011, an increase of 3.5%. No increase was made in 2012 or 2013.
Eduard Ogay1
1
856
%
increase
2012
$000
%
increase
2013
$000
%
increase
2014
$000
%
increase
968
Nil
968
Nil
968
Nil
Eduard Ogay’s salary is set in dollars and paid in tenge. In 2013, the basis of
currency conversion was changed from a fixed rate to a floating rate at market
levels. Whilst his dollar denominated salary has remained unchanged at $968,000
per annum, the amount paid to him has increased by 17% to KZT148 million
(equivalent to £619,000).
Pension and benefits
The Company does not provide pension benefits on behalf
of any executive Directors. The absence of any pension provision
is taken into account when setting base salaries and other elements
of remuneration.
Benefits include health insurance and, where appropriate, car and
driver, and relocation assistance, all in line with entitlements provided
for executives in similar positions in comparable companies.
Annual bonus
The maximum annual bonus opportunity for 2014 will remain
unchanged from 2013 at 200% of salary for Oleg Novachuk and
120% of salary for Eduard Ogay and Vladimir Kim. The target bonus
will also remain at the same level as a percentage of salary at 100%
of salary for Oleg Novachuk and 60% of salary for Eduard Ogay and
Vladimir Kim. The Committee will continue to review the maximum
bonus amount to ensure it remains appropriate.
Following a review of the performance conditions of the annual
bonus plan in 2013, the Committee agreed to reduce the number
of performance elements from four to three to provide better
alignment with the Group’s key business focus of restructuring the
core business and the delivery of the Group’s major projects at
Bozshakol and Aktogay.
For 2014, the annual bonus plan will comprise three
discrete elements:
• operational performance;
• financial performance; and
• strategic developments (including development of the major
growth projects and objectives relating to restructuring of the
core business),
with the first two elements representing 25% each of the maximum
bonus potential and the strategic developments element
representing 50% of the maximum bonus potential.
Awards will also be subject to a safety override, ensuring that they
will be scaled back to reflect the Group’s safety performance.
Specific targets will not be disclosed in advance as they would give
a clear indication of the Group’s business objectives which are
commercially sensitive.
The operational element will be determined on the basis of a
rounded assessment of performance against budget for the
following metrics: ore output, own copper cathode equivalent
production, net cash cost of copper and maintenance spend per
tonne of own copper cathode equivalent production.
The financial element will be determined on the basis of a rounded
assessment of performance against budget for the following
metrics: Group EBITDA, EPS and Free Cash Flow.
The awards will continue to be granted as nil-cost options.
The number of shares that vest will continue to be dependent
on Kazakhmys’ Total Shareholder Return (TSR) performance
compared to a comparator group of UK and international
mining companies. If Kazakhmys’ TSR is ranked median or
above, an award will vest as follows:
TSR ranking of Kazakhmys
Vesting percentage
Upper quartile ranking
Between median and upper
quartile ranking
Median ranking
Below median ranking
100%
Straight-line vesting between
30% and 100% based on
ranking plus interpolation
between rankings
30%
0%
TSR Performance Vesting Schedule
% of total
award vesting
100%
75%
Governance Report
The strategic development element will be determined on the basis
of a rounded assessment of objectives mainly relating to the
execution of new projects, particularly those at Bozshakol and
Aktogay, and the realignment of the business. However, specific
metrics relating to the strategic developments element will not be
disclosed in advance as they are considered to be commercially
sensitive at this time.
Long-term incentives
LTIP award levels will remain unchanged for 2014. It is the
Committee’s intention to grant an award of performance
shares with a face value of 200% of salary to Oleg Novachuk and
Eduard Ogay during 2014. The value of the award will be based
on a five day average share price commencing immediately after
the announcement of the Group’s preliminary results. The
Committee will continue to review the award level to ensure
it remains appropriate.
50%
25%
0%
0%
25%
50%
75%
100%
Performance relative to comparator group (percentile)
The Committee will assess performance against the 2014 elements
utilising a scoring system of 0-4 where 0 represents 0% bonus and
rising in equal increments so that a maximum bonus is payable for
a score of 4. Details of the assessment for 2014 will be disclosed
in next year’s Annual Report on Remuneration along with details
of the payments resulting. However, details relating to strategic
developments, will not be disclosed until it is felt that such
disclosures cease to be commercially sensitive.
To take account of any serious problems that the Company may
become aware of in the years after awards have been made,
awards under the annual bonus plan will be subject to clawback.
Under this mechanism, the Committee has discretion in exceptional
circumstances to determine that where there has been continuity
of executive responsibility (between initiation of a serious adverse
event and its emergence as a problem), the serious adverse event
should be taken into account in assessing annual bonuses in the year
the problem is identified, and, where appropriate, determining that
a deferred share award will not vest, will only partially vest, or will
be subject to a delayed vesting. Such circumstances may include a
material restatement of the Group’s financial statements, the
discovery of endemic problems in financial or operational reporting,
or where, as a result of financial and operational losses, a material
breach of regulatory guidelines has occurred or is likely to occur.
Prior to 2011, the TSR target was measured on a single ‘base to end’
three-year performance period. In 2011 the Committee made a
minor change to the operation of the TSR performance target, so as
to split the awards into two sub-awards each with three-year vesting
periods. This will not have any impact on the expected value of the
awards, but will help to mitigate the impact that the cyclical nature of
the copper industry has on Kazakhmys’ share price.
For awards to be granted in 2014 the performance period for the
sub-awards will be:
• sub-award 1: 1 January 2014 to 31 December 2016; and
• sub-award 2: 1 June 2014 to 31 May 2017.
As the performance period of the first sub-award commences prior
to the date of grant and that of the second sub-award commences
after the date of grant, the performance period for the entire
award will be 41 months.
www.kazakhmys.com
83
Governance Report
The averaging period for calculating TSR will be three months
leading up to the start and the end of the performance period of
each sub-award. Under this phased approach Kazakhmys’ TSR for
a period of six months at the start and the end of the performance
period of the entire award will have an impact on the performance
outturn. This phased approach is designed to increase the number
of months the share price has an impact on the performance target
and to reduce the impact of the volatility of Kazakhmys’ share price
on the vesting of awards, whilst not materially changing the average
vesting level over the medium term (and hence not increasing the
expected value of awards).
The comparator group applicable for awards to be granted in 2014
will comprise:
Anglo American plc
BHP Billiton plc
First Quantum Minerals Ltd
Fresnillo plc
Hochschild Mining plc
Lundin Mining Corporation
Southern Copper Corporation
Vedanta Resources plc
Antofagasta plc
Boliden AB
Freeport-McMoran
Copper & Gold Inc
Glencore Xstrata plc
KGHM Polska Miedz S.A.
Rio Tinto plc
Teck Resources Ltd ‘B’
Other than the replacement of Inmet Mining Corporation (which
delisted in April 2013) and Eurasian Natural Resources Corporation
PLC (which delisted in November 2013) by KGHM Polska Miedz
S.A. and the replacement of Xstrata plc and Glencore International
plc (which merged in May 2013) with Glencore Xstrata plc, it is
intended that the comparator group for 2014 will be consistent
with the 2013 group.
In the event of one or more constituents undergoing a take-over,
merger, dissolution, variation in capital or any other event that
will materially affect calculation of a ranking, the Committee shall
determine how this should be reflected in the ranking calculation.
In the event of a change of control, awards will normally vest on
a pro-rata basis by reference to the length of time since the award
was granted, and only if the performance conditions can effectively
be regarded as having been satisfied at that time, although the
Committee may decide not to pro-rate an award if it is
inappropriate to do so in the particular circumstances.
Executive share option plan
The ESOP is an HMRC approved discretionary company share
option plan that provides for the grant of market value options
up to a value of £30,000 to executive Directors and certain
selected UK-based senior executives. Options will normally vest at
least three years from the date of grant, subject to the satisfaction
of a performance condition and the participant being a Director
or employee of Kazakhmys at that time.
Options granted to executive Directors and senior management
under the ESOP will count towards the individual limits under the
LTIP and will normally be subject to the same performance
condition and periods as awards granted under the LTIP.
No executive Director currently participates in the ESOP.
84
All employee share schemes
Executive Directors are eligible to participate in the Company’s UK
and International Sharesave and Share Incentive Plans on the same
terms as other eligible employees.
Sharesave
The maximum participation level in the UK and International
Sharesave Plans is as per HMRC limits (maximum monthly savings
towards share purchases is limited to £250 (or local currency
equivalent) per calendar month) with participants granted linked
share options (by reference to projected savings) with a strike price
up to a 20% discount to the prevailing share price at the time of
grant. On the maturity of the savings contracts, participants can
elect to (i) use the accumulated savings to exercise the option
or (ii) request the return of their savings.
Share Incentive Plan
The maximum participation level in the UK and International
Share Incentive Plans is as per HMRC limits and provides for
a combination of the following:
• free shares – the Company can give each participant free shares
worth up to £3,000 (or local currency equivalent) each;
• partnership shares – participants can use up to £1,500 (or local
currency equivalent) per year out of pre-tax and pre-NICs pay
to buy partnership shares;
• matching shares – employers can give matching shares at a ratio
of up to two matching shares for each partnership share bought
by the employee; and
• dividend shares – participants can use up to £1,500 (or local
currency equivalent) of dividends from plan shares each year
to buy further shares in the company through the plan.
No executive Director currently participates in a Sharesave
or Share Incentive Plan.
Chairman and other non-executive Directors’ remuneration
The fees paid to the non-executive Directors for chairing and being
members of committees and of the Senior Independent Director
were reviewed in August 2013 and decreased, with the changes
taking effect from 1 September 2013. These changes resulted in
the total fees payable to non-executive Directors being reduced
by around 4% per annum. The Board has been taking measures to
improve the market capitalisation of the Company. Non-executive
Director fees will be further reviewed during 2014 in relation
to progress towards that objective. The fee structure from
1 January 2014 is shown on page 80.
The Board appointed Simon Heale as non-executive Chairman
with effect from the conclusion of the Annual General Meeting on
17 May 2013. His fee at that time was set at £300,000 per annum,
which he has proposed to reduce to £275,000 per annum from
1 April 2014.
In addition to his base fee, Vladimir Kim receives a salary of
£780,000 per annum and is entitled to a discretionary annual
cash bonus of up to 120% of salary as executive chairman of
Kazakhmys Corporation LLC.
For the Chairman and each non-executive Director who served
during 2013, the effective date of their letter of appointment is
shown in the table below:
Name
Letter of appointment
Philip Aiken AM1
Lynda Armstrong OBE
Clinton Dines
Simon Heale2
Vladimir Kim3
Michael Lynch-Bell
Charles Watson
Daulet Yergozhin4
1 November 2006
21 October 2013
1 October 2009
27 February 2013
17 May 2013
27 February 2013
1 December 2005
24 August 2011
19 November 2008
1
Stood down as a Director on 31 August 2013.
2
Prior to his appointment as Deputy Chairman and Chairman designate, Simon
Heale had a letter of appointment dated 21 November 2006 in respect of his
appointment as a non-executive Director on 1 January 2007, which terminated
upon him becoming Chairman of the Company.
3
Prior to his appointment as a non-executive Director, Vladimir Kim had a service
agreement dated 26 September 2005 in respect of his appointment as an
executive Director on 1 October 2005, which terminated upon him becoming
a non-executive Director.
4
Stood down as a Director on 5 December 2013.
Directors’ remuneration for 2013
Executive Directors’ remuneration
Oleg Novachuk
2013
2012
£000
£000
1
2
3
Vladimir Kim3
2013
2012
£000
£000
6192
–
532
–
404 1,062
60
105
6192
532
464 1,167
244
255
170
509
–
–
–
–
244
863
255
787
170
509
634 1,676
Bonus figures relate to bonus amounts paid in 2013 and 2014 in respect of the
prior year performance period.
Eduard Ogay’s salary is set in dollars and paid in tenge. In 2013, the basis of
currency conversion was changed from a fixed rate to a floating rate at market
levels. Whilst his dollar denominated salary has remained unchanged at $968,000
per annum, the amount paid to him has increased by 17% to KZT148 million
(equivalent to £619,000).
Stood down as Executive Chairman on 17 May 2013. In addition to his
remuneration as Executive Chairman, Vladimir Kim was paid a fee of £52,000
as a non-executive Director plus a salary of £486,500 and an annual bonus of
£204,000 as executive chairman of Kazakhmys Corporation LLC.
Executive Directors’ annual bonus awards
(performance period 1 January 2013 to 31 December 2013)
For 2013, the annual bonus plan comprised four discrete elements,
with each element representing an equal proportion of the
maximum bonus potential:
•
•
•
•
operational performance;
financial performance;
strategic developments (including execution of new projects); and
shareholder return.
Awards were also subject to a safety override enabling them
to be scaled back to reflect the Group’s safety performance.
Performance assessment for 2013
Despite the challenging market conditions the executive
management team were able to deliver satisfactory operational
performance, with output of all metals being in line with guidance
given to the market at the beginning of 2013. Although measures
were taken in the second half of the year to reduce costs, financial
performance was impacted by lower commodity prices and cost
pressures, with performance generally being below budget. Total
shareholder return was disappointing, reflecting in the most part the
fall in the metal prices over the period and higher operating costs.
Strong progress was made in re-shaping the portfolio and disposals
were successfully made of MKM and the Group’s stakes in Ekibastuz
GRES-1 and ENRC PLC. The major project development at
Bozshakol remains on track for first production in 2015. However,
an additional contractor has been appointed at Bozshakol, which
has led to an increase in the overall budget cost of the project
of around $350 million.
The overall level of performance achieved resulted in annual
bonus awards of 44% of maximum potential.
However, the Committee considered that safety performance
over 2013 was not satisfactory and requires further improvement.
In light of this, the Committee scaled back resulting bonuses by
20%. As a result the overall annual bonus awards to the executive
Directors and Vladimir Kim were 35% of maximum bonus potential
at 70%, 42% and 42% of salary for Oleg Novachuk, Eduard Ogay
and Vladimir Kim, respectively. The Committee is satisfied that this
level of bonus is appropriate given the performance achieved
across this scorecard and the safety assessment.
Performance assessment for 2013
Operational
Financial
Strategic
Shareholder
return
0
1
2
3
www.kazakhmys.com
4
85
Governance Report
Salary
856
856
Benefits
3
37
Sub-total – fixed
remuneration
859
893
Annual
performance
bonus1
599
685
Long Term
Incentive Plan
–
–
Sub-total – variable
remuneration
599
685
Total
1,458 1,578
Eduard Ogay
2013
2012
£000
£000
The Committee assessed each discrete element of the annual
bonus plan separately as part of an overall balanced scorecard
of measures. Within each element the Committee considered
a number of sub-elements and formed a rounded assessment
of the performance of executive Directors at the end of the year.
Governance Report
Executive Directors’ Long Term Incentive Plan awards
(performance period 9 April 2010 to 8 April 2013 and 1 January 2011 to 31 December 2013)
Awards granted to selected senior managers, excluding executive Directors, under the LTIP on 9 April 2010 were subject to a relative TSR
performance condition with TSR measured against a bespoke group of global mining companies over the three-year period from date of grant.
The following vesting schedule applied to the awards:
TSR ranking of Kazakhmys
Vesting percentage
Upper quartile ranking
Between median and upper quartile ranking
100%
Straight-line vesting between 30% and 100% based on
ranking plus interpolation between rankings
30%
0%
Median ranking
Below median ranking
At the end of the performance period Kazakhmys was ranked 19 out of the 22 comparator companies. This award thus lapsed in full
having failed to meet the required threshold median ranking.
In 2011, the basis of measurement was changed so that awards granted in April 2011 were split into two sub-awards, the first with
performance measured over the three-year period from 1 January 2011 and the second over the three-year period from 1 June 2011.
Therefore, half of the awards made in April 2011 were due to vest based on performance ending in 2013. The same vesting schedule as set
out above was applicable to these awards, with TSR measured relative to a bespoke group of global mining companies.
For the sub-award measured over the period 1 January 2011 to 31 December 2013, Kazakhmys was ranked below median ranking.
This sub-award has thus lapsed in full having failed to reach the threshold median positioning. The sub-award measured over the period
1 June 2011 to 31 May 2014 is also expected not to reach the threshold median positioning and is also expected to lapse in full.
LTIP awards granted in the year
During 2013, awards were made to each of Oleg Novachuk and Eduard Ogay at 200% of salary. The awards were made on 5 April 2013
on the following basis:
Executive Director
Type of Award
Oleg Novachuk
Eduard Ogay
Basis of award Share price at date Number of shares
granted
of grant
awarded
Nil-cost option 200% of salary
Nil-cost option 200% of salary
375p
375p
455,998
280,379
Face value of
award
£000
% of face value
which vests at
threshold
1,710
1,051
30
30
The awards were made subject to a TSR performance condition which requires the Company to deliver a median ranking (30% vests) rising
on a straight-line basis to an upper quartile TSR ranking (100% vests) relative to a peer group of mining companies (see page 84 for details
of the peer group). The awards were split into two sub-awards measured over two separate performance periods, i.e. 1 January 2013 to
31 December 2015 and 1 June 2013 to 31 May 2016. The averaging period for calculating TSR will be three months leading up to the start
and the end of the performance period of each sub-award.
Executive Directors’ interests in the Long Term Incentive Plan
Executive Director
Oleg Novachuk
Eduard Ogay
1
2
86
Date of award
Date of vesting
6 April 2011
4 April 2012
5 April 2013
6 April 2011
4 April 2012
5 April 2013
1 June 2014
1 June 2015
1 June 2016
1 June 2014
1 June 2015
1 June 2016
Number of
shares
conditionally
awarded as at
1 January 2013
117,0062
188,359
–
73,6232
110,841
–
Market price at
date of grant
Awards made
during the year
Awards vested
during the year
Awards lapsed
during the year1
Number of
shares under
award as at
31 December
20131
1,468p
887p
375p
1,468p
887p
375p
–
–
455,998
–
–
280,379
–
–
–
–
–
–
–
–
–
–
–
–
117,006
188,359
455,998
73,623
110,841
280,379
The table shows the maximum number of shares that could be released if awards were to vest in full. Participants do not receive dividends on unvested shares.
Half of the award lapsed on 1 January 2014 on failing to achieve the required TSR target.
Performance graph
The graph below shows the value, at 31 December 2013, of £100
invested in Kazakhmys PLC shares on 31 December 2008 compared
with an equivalent investment in the FTSE 350 Index and FTSE 350
Mining Sector Index. These indices were chosen as they are
broad-based indices and are widely recognised performance
comparisons for large UK mining companies.
Total Shareholder Return
£
800
600
400
which is distorted by movements in the number of employees and
variations in wage practices in Kazakhstan. For the benefits and
bonus per employee, this is based on those employees eligible to
participate in such schemes.
Change in remuneration levels
Chief Executive (£’000)
Salary
Benefits
Bonus1
Average per employee (£)
Salary
Benefits
Bonus1
1
200
2
0
Dec-08
Dec-09
Dec-10
Dec-11
Dec-12
Dec-13
FTSE 350 Index
Kazakhmys PLC
FTSE 350 Mining Sector Index
Source: Thomson Reuters
Remuneration of highest paid executive Director
The table below shows the total remuneration figure for the highest
paid executive Director (i.e. the Executive Chairman for 2009 to
2012 and the Chief Executive for 2013) during each of those
financial years. The total remuneration figure includes the annual
bonus and LTIP awards which vested based on performance in
those years. The annual bonus and LTIP percentages show the
payout for each year as a percentage of the maximum.
20101
20111
20121
20132
Total remuneration 1,801
(£000)
Annual bonus (%)
71
LTIP vesting (%)
–
1,736
1,768
1,676
1,458
58
–
50
–
40
–
35
–
1
2
Remuneration of other senior managers
The base salaries for the year ended 31 December 2013 of those
senior managers immediately below the level of the Board were as
shown in the table below:
Number of senior managers
£600,000 – £699,000
£500,000 – £599,999
£400,000 – £499,999
1
856
3
685
856
37
715
Nil
(92)
(4)
90,054
1,372
17,106
77,764
813
23,180
162
69
(26)
Bonus figures relate to bonus amounts paid in 2012 and 2013 in respect of the
prior year performance period.
Increase reflects the inclusion of the salary of Matthew Hird from May 2013
up to the date of his leaving the Company in September 2013.
Relative importance of spend on pay
The table below shows the movement in the total cost of
remuneration in the Group, the total cost of remuneration for
Directors as well as dividend distributions to shareholders and
capital expenditure.
Spend on pay
Overall expenditure on Group
employees’ pay
Overall expenditure on pay for
executive Directors
Distribution by way of dividends
Capital expenditure
2013
£ million
2012
£ million
% change
481
449
7
3
27
802
4
77
774
(25)
(64)
4
Capital expenditure is shown in the table above as Directors have
a choice of whether to distribute profits and cash flows by way of
dividend, or reinvest these in the asset base to maintain or improve
the Group’s operations.
1
–
2
Includes base salary of Andrew Southam, Chief Financial Officer.
Non-executive Directors’ fees and expenses
Philip Aiken AM1
Lynda Armstrong OBE2
Clinton Dines3
Simon Heale
Vladimir Kim4
Michael Lynch-Bell
Charles Watson
Daulet Yergozhin5
Chief Financial Officer’s
remuneration
Annual base
salary
£000
Annual
bonus
£000
Total
2013
£000
1
Andrew Southam
410
264
674
3
1
% change
Non-executive Directors’ fees
Fees paid to non-executive Directors during the year ended
31 December 2013 are set out below:
Relates to the remuneration of Vladimir Kim, Executive Chairman at that time.
Relates to the remuneration of Oleg Novachuk, Chief Executive.
Salary range
2012
Andrew Southam became Chief Financial Officer on 17 May 2013.
Percentage change in remuneration levels
The table opposite shows the movement in the salary, benefits and
annual bonus for the Chief Executive between the current and
previous financial year compared to that for the average UK
employee. The Committee has chosen this comparator as it feels
that it provides a more appropriate reflection of the earnings of the
average worker than the movement in the Group’s total wage bill,
2
4
5
Total fees
2013
£000
Total fees
2012
£000
79
19
132
242
52
87
95
119
78
126
–
127
108
–
–
96
108
84
Stood down as a Director on 31 August 2013.
Appointed a Director on 21 October 2013.
Includes £29,000 (2012: £22,000) in flight and accommodation expenses
for travel to the UK to attend Board and committee meetings.
Stood down as Executive Chairman and became a non-executive Director on
17 May 2013. In addition to his fee as a non-executive Director, Vladimir Kim was
paid a salary of £486,500 and an annual bonus of £204,000 as executive chairman
of Kazakhmys Corporation LLC. Prior to his appointment as a non-executive
Director and executive chairman of Kazakhmys Corporation LLC, he was paid
£403,900 as Executive Chairman of the Company and received benefits of
£60,185 and a bonus of £170,000.
Stood down as a Director on 5 December 2013. As a minister of the Government
of Kazakhstan, Daulet Yergozhin was not permitted to receive fees personally and
his fees were paid to SABY charitable trust, a children’s charity based in Kazakhstan.
www.kazakhmys.com
87
Governance Report
20091
2013
Governance Report
Directors’ interests in ordinary shares
The beneficial interests of the Directors and their connected persons who held office at 31 December 2013 in the Company’s
ordinary shares as at that date and 1 January 2013 are shown in the table below:
Ordinary shares
Ordinary shares
beneficially owned beneficially owned at
at 1 January 2013 31 December 2013
Directors’ interests in ordinary shares
Lynda Armstrong OBE
Clinton Dines
Simon Heale
Vladimir Kim
Michael Lynch-Bell
Oleg Novachuk
Eduard Ogay
Charles Watson
–
3,000
5,000
149,306,795
–
34,923,423
3,834,427
4,000
3,624
Outstanding LTIP
awards
% of shareholding
guideline as at 31
December 2013
–
–
–
–
–
761,363
464,843
–
–
–
–
–
–
–
100
100
–
–
4,000
3,000
28,000
149,306,795
7,000
34,923,423
3,834,427
4,000
3,624
1 The ordinary shares beneficially owned by Oleg Novachuk and Eduard Ogay have been pledged to support loans. The voting rights in respect of the pledged ordinary
shares have been retained by them.
2 No changes in Directors’ interests occurred in the period 1 January 2014 to 26 February 2014.
3 The closing market price of the Company’s shares at 31 December 2013 was 219p and the range for the year was 191p to 826p.
Dilution of share capital
The Company’s share-based incentive plans currently operate with
market purchase shares that are held in an Employee Benefit Trust.
Therefore, there is no dilution of existing shareholders on the
vesting of awards. In the event of the Company deciding to use
shares held in treasury, such shares will count towards the limits
on the number of new shares which may be issued under the rules
of the relevant share-based incentive plan pursuant to institutional
shareholder guidelines.
Employee Benefit Trust
The Kazakhmys Employee Benefit Trust has been established to
acquire ordinary shares in the Company, by subscription or
purchase, from funds provided by the Group to satisfy rights to
shares arising on the exercise of awards under the Group’s
share-based incentive plans. The trustees of the Kazakhmys
Employee Benefit Trust have informed the Company that their
intention is to abstain from voting in respect of the Kazakhmys
shares held in the trust.
As at 31 December 2013, 648,215 shares were held by the
Employee Benefit Trust to hedge outstanding awards of 2,689,676.
This means that the trust holds 24% of outstanding awards.
Statement of shareholder voting
At the AGM on 17 May 2013, the advisory vote on the Directors’
Remuneration Report received the following votes from
shareholders:
Votes for
Votes against
Total votes cast
Votes withheld
88
408,767,173
4,768,287
413,535,460
1,056,283
98.85%
1.15%
100%
During the year, the Remuneration Committee wrote to a number
of institutional shareholders and shareholder bodies to seek their
views on the remuneration policy to be submitted to shareholders
on 8 May 2014 to provide them with an opportunity to see the
policy at an early stage and provide feedback. The dialogue was
constructive and shareholders were broadly supportive of the
Committee’s approach on these matters.
When reviewing the remuneration framework of executive
Directors and certain senior managers, the Committee takes
into account the views and guidance expressed by institutional
shareholders and shareholder bodies.
Audit requirements
The Group’s auditor, KPMG Audit Plc, has audited the information
contained in the tables headed Executive Directors’ base salaries,
Executive Directors’ remuneration, LTIP awards granted in the year,
Executive Directors’ interest in the Long Term Incentive Plan,
Remuneration of other senior managers, Non-executive Directors’
fees and expenses, and Directors’ interests in ordinary shares.
On behalf of the Board
26 February 2014
Governance Report
Directors
Share capital
The Directors of the Company who served during the year were
as shown on pages 24 and 25, together with Philip Aiken AM and
Daulet Yergozhin who retired from the Board on 31 August 2013
and 5 December 2013, respectively. Details of Directors’ interests
in shares can be found in the Directors’ Remuneration Report
on page 88.
At 31 December 2013, the Company’s issued share capital was
458,379,033 ordinary shares of 20 pence, each credited as fully
paid. As at the date of this Directors’ Report, the Company holds
11,701,830 ordinary shares in treasury and the issued share capital
of the Company which carries voting rights of one vote per share
comprises 446,677,203 ordinary shares (excluding treasury shares).
Further details of the Company’s issued share capital are shown
in note 29 commencing on page 138.
All Directors are required by the Company’s Articles of Association
to be elected by shareholders at the first Annual General Meeting
after their appointment, if appointed by the Board. Lynda Armstrong
OBE, having been appointed by the Board on 21 October 2013,
will retire at the forthcoming Annual General Meeting and will
be proposed for election. In accordance with the UK Corporate
Governance Code, all other Directors will retire and submit
themselves for re-election at the Company’s forthcoming Annual
General Meeting. Details of Directors’ contracts or letters of
appointment are included in the Directors’ Remuneration Report.
The performance of each Director was reviewed and it was found
that each of them continues to make an effective and valuable
contribution to the deliberations of the Board and demonstrate
commitment to the role. The performance of the Chairman was
reviewed by the Senior Independent Director.
During the year, no Director had any interest in any shares or
debentures of the Company’s subsidiaries, or any material interests
in any contract with the Company or a subsidiary being a contract
of significance in relation to the Company’s business.
The Company’s shares are listed on the London, Hong Kong
and Kazakhstan stock exchanges.
A list of main subsidiary undertakings and their principal activity,
is given in note 40 on page 160.
Major shareholdings
As at 26 February 2014, the Company had been notified under
Rule 5 of the Disclosure and Transparency Rules of the Financial
Conduct Authority of the following interests in its total voting
rights of 3% or more:
Name of holder
Cuprum Holding Limited1
Harper Finance Limited2
Credit Suisse Group AG
Number of ordinary
shares of 20 pence
each held
Percentage of total
voting rights held as at
26 February 2014
135,944,325
29,706,901
23,814,025
30.43
6.65
5.33
1
Vladimir Kim holds a 100% interest in Cuprum Holding Limited.
2
Oleg Novachuk holds a 100% interest in Harper Finance Limited.
Directors’ indemnity and insurance
The indemnity is categorised as a ‘qualifying third-party indemnity’
for the purposes of the Companies Act 2006 and will continue
in force for the benefit of Directors (or Officers or Company
Secretary as the case may be) on an ongoing basis.
Annual General Meeting
The Company’s Annual General Meeting will be held at 12.15pm on
Thursday 8 May 2014 at The Lincoln Centre, 18 Lincoln’s Inn Fields,
London WC2A 3ED, United Kingdom. Details of the meeting venue
and the resolutions to be proposed, together with explanatory
notes, are set out in a separate Notice of Annual General Meeting
which accompanies this Annual Report and Accounts.
A summary of the business carried out at the Annual General
Meeting will be published on the Company’s website
(www.kazakhmys.com).
Relationship agreement
To regulate the ongoing relationship between the Company
and Vladimir Kim, a relationship agreement was entered into
in September 2005. The principal purpose of the relationship
agreement is to ensure that the Group is capable of carrying on
its business for the benefit of the shareholders of the Company
as a whole.
Governance Report
Kazakhmys maintains liability insurance for its Directors and Officers.
The Company has also granted indemnities to each of the Directors,
the Chief Financial Officer and the Company Secretary to the extent
permitted by law. These indemnities are uncapped in amount, in
relation to certain losses and liabilities which they may incur to
third parties in the course of acting as a Director (or Officer or
Company Secretary as the case may be) of the Company or any
of its associated companies. Neither the indemnity nor insurance
cover provides cover in the event that a Director (or Officer or
Company Secretary as the case may be) is proved to have acted
fraudulently or dishonestly.
Political donations
The Group did not give any money for political purposes in the
United Kingdom nor did it make any donations to EU political
organisations or incur any EU political expenditure during the year.
Policy on derivatives and financial instruments
The Group’s objectives and policies on financial risk management,
and information on the Group’s exposures to foreign exchange,
counterparty credit, commodity price, liquidity and interest rate
risks can be found in note 36 commencing on page 144.
Legal proceedings
Neither the Company nor any of its subsidiaries is a defendant in
any proceedings which the Directors believe will have a material
affect on either the Company’s financial position or profitability.
Commitments and contingencies are disclosed in note 37
commencing on page 150.
www.kazakhmys.com
89
Governance Report
Other Statutory Information continued
Significant agreements – change of control
Going concern
The following significant agreements contain certain termination
and other rights for the counterparties upon a change of control
of the Company.
The Directors, having made appropriate enquiries, have satisfied
themselves that no material uncertainties that cast significant doubt
about the ability of the Group to continue as a going concern have
been identified, and they have a reasonable expectation that the
Group has adequate financial resources to continue in operational
existence for the foreseeable future. Therefore, they continue to
adopt the going concern basis of accounting in preparing the
consolidated financial statements.
Each of a $2 billion facility agreement dated 30 December 2009,
a $100 million facility agreement dated 30 December 2009,
a $200 million facility agreement dated 12 January 2010, and two
$200 million facility agreements dated 11 June 2012, in each case
entered into between Kazakhmys Finance PLC as borrower and
Joint Stock Company Sovereign Wealth Fund “Samruk-Kazyna” as
lender, contain terms which give the lender the right to cancel all
or any of the commitments provided to Kazakhmys Finance PLC,
declare all or part of the loans, together with accrued interest,
and all other amounts accrued or outstanding immediately due
and payable and/or declare that all or part of the loans be payable
on demand if the Company ceases to hold 100 per cent. less one
share of the issued share capital of Kazakhmys Finance PLC.
The terms of each of a $1.34 billion facility agreement and
RMB1.0 billion facility agreement each dated 16 December 2011
between Kazakhmys Aktogay Finance Limited as borrower and
China Development Bank Corporation as lender, contain terms
which give the lender the right to cancel any of the commitments
provided to Kazakhmys Aktogay Finance Limited and declare all
outstanding loans together with accrued interest, and all other
amounts accrued and outstanding immediately due and payable
on 30 business days’ notice if the Company ceases to hold
(directly or indirectly) more than 50 per cent of the issued
share capital of Kazakhmys Aktogay Finance Limited
and/or certain other named subsidiaries.
The terms of a $1 billion pre-export finance debt facility
dated 20 December 2012 between Kazakhmys Finance PLC
and a syndicate of banks, provide that if any person (excluding
Vladimir Kim and Oleg Novachuk) or group of people acting in
concert secures control of the Company: (i) a lender under the
facility shall not be obliged to fund a loan; and (ii) if a body of
lenders representing more than two-thirds of the amount of the
facility so require, the parties shall enter into negotiations for a
period of not more than 30 days with a view to agreeing alternative
terms for continuing the facility. If no alternative basis has been
agreed during such period then the lenders may cancel the
commitments of the lenders to lend the facility and declare all
outstanding amounts due and payable.
The terms of a $100 million revolving credit facility dated 8 March
2013 between Kazakhmys Finance PLC and Bank of China Limited,
provide that if any person (excluding Vladimir Kim and Oleg
Novachuk) or group of people acting in concert secures control of
the Company: (i) a lender under the facility shall not be obliged to
fund a loan; and (ii) if a body of lenders representing more than twothirds of the amount of the facility so require, the parties shall enter
into negotiations for a period of not more than 30 days with a view
to agreeing alternative terms for continuing the facility. If no
alternative basis has been agreed during such period then the
lenders may cancel the commitments of the lenders to lend the
facility and declare all outstanding amounts due and payable.
90
Articles of Association
The following description summarises certain provisions of the
Company’s Articles of Association and applicable English law
concerning companies (the Companies Act 2006). This summary
is qualified in its entirety by reference to the Company’s Articles of
Association and the Companies Act 2006. The Company’s Articles
of Association may only be amended by a special resolution at a
general meeting of shareholders.
Rights attaching to shares
The rights attaching to the ordinary shares of the Company
are defined in the Company’s Articles of Association.
Voting rights
Members may attend any general meeting of the Company.
On a show of hands every member (or his representative) who
is present in person or by proxy has one vote on each resolution
and on a poll every member (or his representative) who is present
in person or by proxy shall have one vote on each resolution for
each share of which he/she is the holder.
As a result of changes introduced by the Companies Act 2006
to allow multiple proxies appointed by a single member to vote
on a show of hands, all substantive resolutions at general meetings
will normally be put to a poll vote. Employees who participate in
the Company’s Share Incentive Plans (SIP) and hold shares in the
SIP trusts provide directions to the trustee to vote on their behalf
by way of a form of direction.
The Company is not aware of any agreements between
shareholders that may result in restrictions on voting rights.
Dividend rights
Shareholders may by ordinary resolution declare dividends
but the amount of the dividend may not exceed the amount
recommended by the Board.
Transfer of shares
There are no restrictions on the transfer of shares other than
certain restrictions as set out in Company’s Articles of Association.
Transfers of uncertificated shares must be carried out using CREST
and the Board can refuse a transfer of an uncertificated share in
accordance with the regulations governing the operation of CREST.
The Company is not aware of any agreements between shareholders
that may result in restrictions on the transfer of shares.
Powers of the Directors
The Directors are responsible for the management of the business
of the Company and may exercise all powers of the Company
subject to applicable legislation and regulation and the Company’s
Articles of Association.
Audit information
The Directors who held office at the date of approval of this
Directors’ Report confirm that so far as they each are aware, there
is no relevant audit information (being information needed by the
auditors in connection with preparing their audit report), of which
the Company’s auditors are unaware, and each Director has taken
all steps that he ought to have reasonably taken as a Director to
make himself aware of any relevant audit information and to
establish that the Company’s auditors are aware of that information.
Auditors
The Audit Committee has reviewed the independence,
objectivity and performance of the auditors, KPMG.
KPMG Audit Plc has informed the Company that it wishes to
formally change the entity which conducts the Company’s audit from
KPMG Audit Plc to KPMG LLP. Therefore, KPMG Audit Plc will not
stand for re-appointment at the Company’s forthcoming Annual
General Meeting and instead KPMG LLP will seek appointment as
the Company’s auditors at this meeting. The Audit Committee has
recommended, and the Board has approved, resolutions to be
proposed at the forthcoming Annual General Meeting to appoint
KPMG LLP as the Company’s auditors and to authorise the
Directors to set their remuneration.
The Directors are responsible for preparing the Annual Report
and the Group and parent company financial statements in
accordance with applicable law and regulations.
Company law requires the Directors to prepare Group and parent
company financial statements for each financial year. Under that
law they are required to prepare the Group financial statements in
accordance with International Financial Reporting Standards (IFRS)
as adopted by the European Union (EU) and applicable law and have
elected to prepare the parent company financial statements on
the same basis.
Under company law the Directors must not approve the financial
statements unless they are satisfied that they give a true and fair
view of the state of affairs of the Group and parent company and
of their profit or loss for that period. In preparing each of the
Group and parent company financial statements, the Directors
are required to:
• select suitable accounting policies and then apply
them consistently;
• make judgements and estimates that are reasonable
and prudent;
• state whether they have been prepared in accordance with
IFRS as adopted by the EU, subject to any material departures
disclosed and explained in the Group and parent company
financial statements; and
Under applicable law and regulations, the Directors are also
responsible for preparing a Directors’ Report, Directors’
Remuneration Report and Corporate Governance Statement
that complies with that law and those regulations.
The Directors are responsible for the maintenance and integrity of
the corporate and financial information included on the Company’s
website. Legislation in the UK governing the preparation and
dissemination of financial statements may differ from legislation
in other jurisdictions.
Responsibility statement
Each Director confirms to the best of his knowledge that:
• the Group and parent company accounts, prepared in accordance
with IFRS as adopted by the European Union, give a true and fair
view of the assets, liabilities, financial position and profit or loss of
the Company and the undertakings included in the consolidation
taken as a whole;
• the Strategic Report, Directors’ Report and Governance Report
include a fair review of the development and performance of
the business and the position of the Company and the
undertakings included in the consolidation taken as a whole,
together with a description of the principal risks and uncertainties
that they face; and
• the Annual Report and Accounts, taken as a whole, is fair,
balanced and understandable and provides the information
necessary for shareholders to assess the Company’s
performance, business model and strategy.
The Strategic Report comprising pages 2 to 27, the Directors’
Report comprising pages 30 to 57 and 89 to 91, and the
Governance Report comprising pages 60 to 88, and including the
sections of the Annual Report and Accounts referred to in these
pages, have been approved by the Board and signed on its behalf by:
Robert Welch
Company Secretary
26 February 2014
Registered Office
6th Floor, Cardinal Place
100 Victoria Street
London
SW1E 5JL
Registered in England and Wales No. 05180783
• prepare the financial statements on the going concern basis
unless it is inappropriate to presume that the Group and the
parent company will continue in business.
www.kazakhmys.com
91
Governance Report
Statement of Directors’ responsibilities in respect
of the annual report and the financial statements
The Directors are responsible for keeping adequate accounting
records that are sufficient to show and explain the Group’s and
parent company’s transactions and disclose with reasonable accuracy
at any time the financial position of the Group and of the parent
company and enable them to ensure that the financial statements
comply with the Companies Act 2006. They have general
responsibility for taking such steps as are reasonably open to
them to safeguard the assets of the Group and to prevent and
detect fraud and other irregularities, and have adopted a control
framework for application across the Group.
Aktogay
Offloading equipment at Aktogay station.
Financial
Statements
Consolidated Income Statement
Consolidated Statement of
Comprehensive Income
Consolidated Balance Sheet
Consolidated Statement of Cash Flows
Consolidated Statement of
Changes in Equity
Notes to the Consolidated
Consolidated Five Year Summary
Production and Sales Figures
Mining Ore Reserves and
Mineral Resources
Glossary
94
98
99
100
101
102
103
161
162
168
173
175
Independent
auditor’s report
WRWKHPHPEHUVRI
.D]DNKP\V3/&RQO\
Opinions and conclusions arising from our audit
1 Our opinion on financial statements is unmodified
We have audited the financial statements of Kazakhmys PLC for
the year ended 31 December 2013 set out on pages 98 to 160.
In our opinion:
• the financial statements give a true and fair view of the state
of the Group’s and of the Parent Company’s affairs as at
31 December 2013 and of the Group’s profit for the year
then ended;
• the Group financial statements have been properly prepared in
accordance with International Financial Reporting Standards as
adopted by the European Union (IFRSs as adopted by the EU);
• the Parent Company financial statements have been properly
prepared in accordance with IFRSs as adopted by the EU and
as applied in accordance with the provisions of the Companies
Act 2006; and
• the financial statements have been prepared in accordance with
the requirements of the Companies Act 2006 and, as regards
the Group financial statements, Article 4 of the IAS Regulation.
2 Our assessment of risks of material misstatement
In arriving at our opinions above on the financial statements, the
risks of material misstatement that had the greatest effect on our
audit, and the key procedures to address them, were as set out
below. Those procedures were designed in the context of the
financial statements as a whole and, consequently, where we set
out findings we do not express any opinion on these individual risks.
Impairment of assets
Refer to page 112 (note 4 – Significant accounting judgements
and key sources of estimation uncertainty – Impairment of assets),
pages 124 and 125 (note 8 – Impairment losses) and page 70
(Audit Committee report)
• The risk The Group has recorded significant impairments during
the year. Despite this, at 31 December 2013 the Group’s net
asset value exceeded its market capitalisation by $2.3 billion,
which might imply that there are additional impairments that
have not been recognised.
94
• Our response In light of this, we assessed the potential for
impairment of all cash generating units within the Group
irrespective of whether indicators of potential impairment had
been identified. Our audit procedures included, among others,
testing the control designed and applied by the Group to ensure
that its impairment analysis is appropriately undertaken and
reviewed. We evaluated the identification of cash generating
units by the Group against the requirements of accounting
standards, taking into account any business changes during the
year. We considered the estimates of fair value less costs to
sell which the Group derived, as is common in the industry, on
a discounted cash flow basis. We challenged the appropriateness
of key assumptions underlying the discounted cash flows (including
commodity prices, production costs, inflation, foreign exchange,
production volume, discount rates, life of assets and ore reserves,
committed capital expenditure for development projects) based
on historical production information, together with market and
other externally available information. We used our valuation
specialists to assess the discount rate used. We tested the
mathematical accuracy of the discounted cash flow models.
We evaluated the sensitivity of the outcomes by considering
downside scenarios against reasonably plausible changes to the
key assumptions. Finally, we rationalised the difference between
market capitalisation and the net asset value, having regard to
analyst valuations, which are typically also based on net present
values, and market commentary and we evaluated the
appropriateness of the relevant disclosure.
• Our findings We found that the Group had assessed and
recorded impairments based on a balanced set of assumptions.
We found that the difference between the market capitalisation
and the Group’s net assets could be largely explained by market
valuations generally attributing a negative value to the Group’s
existing copper business in Kazakhstan. In particular, the carrying
value of the relevant assets in the Zhezkazgan Region which has
been written down to nil (the lowest it can be under accounting
standards even though the discounted cash flow results in a
significant negative outcome). We found that the disclosure
appropriately describes the inherent degree of judgement
involved and the potential impact on future periods of
amendments to the key assumptions.
Disclosure relating to going concern
Refer to page 103 (note 2 – Basis of preparation –
(a) Going concern) and page 71 (Audit Committee report)
• The risk The Group’s cash flow projections over the near-term
are characterised by capital expenditure on its major development
projects exceeding operating cash inflows. The Group is therefore
dependent on its existing cash resources and available borrowing
facilities to fund this expenditure until the first of these projects,
Bozshakol, delivers positive cash flow. The financial statements
explain how the Directors have formed a judgement that the
going concern basis is appropriate in preparing the financial
statements of the Group. The Directors have concluded that
the range of possible outcomes they have considered in arriving
at this judgement is not sufficient to give rise to a material
uncertainty regarding the Group’s ability to continue as a going
concern. As this assessment involves consideration of future
events, there is a risk that the judgement is inappropriate and
the uncertainty should have been assessed as material, in which
case additional disclosures would have been required.
• Our response Our audit procedures included, among others,
challenging the appropriateness of key assumptions in the cash
flow projections (including commodity prices, production costs,
inflation, foreign exchange, production volume, committed
capital expenditure and the availability of borrowing facilities)
based on historical production information, together with
market and other externally available information. We also
assessed the projected timing of the receipt of the $1.25 billon
proceeds of the sale of its interest in Ekibastuz GRES-1.
We tested the mathematical accuracy of the projections.
We evaluated the sensitivity of the projected available cash
by considering downside scenarios against reasonably plausible
changes to the key assumptions. We evaluated the potential
impact of the mitigating actions management believe are available
to them in the event that available cash is lower than projected
considering, amongst others, the actions undertaken by
management during the last global economic downturn.
We considered the appropriateness of the relevant disclosure.
• Our findings We found both the use of the going concern basis
of accounting and the conclusion that there is not a material
uncertainty about the Group’s ability to continue as a going
concern to be supported by the evidence available. We found
the disclosure on the use of the going concern basis of accounting
in note 2 to the financial statements to be appropriate and that
it included a balanced description of the circumstances which
could possibly lead to a need for additional financing in the
medium term.
Bribery and corruption
Refer to pages 69 and 70 (Audit Committee report)
• The risk The Group’s business involves mining activities
in Kazakhstan and Kyrgyzstan. Transparency International’s
Corruption Perceptions Index 2013 indicates that corruption
risks are significant in both countries. In addition, companies in
the mining sector are inherently at higher risk from corruption
due to the significant level of government regulation and their
procurement profile. This could result in material losses to
the Group and material improper payments not being
appropriately disclosed.
• Our findings We did not identify any instances of improper
payments from our audit procedures, including from enquiries
of senior operational management and executive management
and where we found individual transactions that appeared
unusual we were satisfied that upon analysis these were not
indicative of bribery or corruption. On this basis, no improper
payments that require disclosure have come to our attention.
Disability benefits
Refer to page 113 (note 4 – Significant accounting judgements and
key sources of estimation uncertainty – employee benefits) and
pages 140 and 141 (note 31 – Employee benefits) and page 71
(Audit Committee report)
• The risk The Group has a number of employees and former
employees who have suffered workplace injuries and are eligible
to receive disability payments from the Group compensating the
employees for their inability to work, the disability they have
suffered and to pay for certain medical expenses. The disability
payments can be for a predefined term or for life, depending on
severity and are often linked to the rate of salary increases in the
business. The provision is established on an actuarial basis with
key assumptions being interpretation of the relevant legislation
in Kazakhstan, discount rate, mortality rates and future salary
inflation. Small changes to the assumptions and estimates used to
value the future disability payment obligation can have a significant
impact on the financial position and results of the Group.
testing the controls designed and applied by the Group to
provide itself with assurance that the assumptions are updated
and monitored regularly and that the final assumptions used in
the calculation have been approved. We evaluated the process
undertaken by the Group to compile the employee data used
for the valuation by testing samples to assess the accuracy and
completeness of this data. We challenged the key assumptions
used in the calculation of the future disability payment obligation,
with input from our own actuarial specialists, including by
comparing key assumptions such as the discount, inflation and
mortality rates against externally derived data. We assessed the
competency and objectivity of the actuarial specialists engaged
by the Group to assist in valuing the future disability payment
obligation. We considered the appropriateness of the related
disclosure in note 31 to the financial statements.
• Our findings We found the Group’s judgements as to the
assumptions and resulting estimates and the related disclosure
in notes 4 and 31 to be balanced and the calculations to have
been performed by suitably qualified actuarial specialists.
considering the Group’s policies and procedures to prevent
the risk of corruption. We evaluated the tone set by the Board
and by senior management. We evaluated the Group’s policies,
procedures and controls over the selection of suppliers and the
process over acknowledging acceptance of services/equipment
provided by suppliers. We tested samples of payments made to
suppliers and considered any transactions which we considered
unusual in the context of the Group’s operations. We reviewed
dealings with government agencies with a view to identifying
indicators of corruption. Where we found individual transactions
that appeared to be outside the normal course of business,
having enquired about these transactions from senior operational
management and executive management, we sought to
corroborate explanations given by investigating the nature
of the transactions and evaluating the business rationale for the
transactions taking account of our experience in the mining and
other industries in Kazakhstan. We discussed our findings with
senior operational management, the Audit Committee and the
Board and enquired as to whether they had knowledge of any
improper payments. We involved KPMG’s forensic accounting
specialists to assist in the design of our procedures and we
remained alert to indications of the existence of bribery and
corruption throughout our performance of other audit procedures.
4
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95
Independent Auditor’s Report continued
Tax contingencies (including Excess Profit Tax)
Refer to page 113 (note 4 – Significant accounting judgements
and key sources of estimation uncertainty – Income taxes),
pages 150 and 151 (note 37 – Commitments and contingencies
– (b) Kazakhstan taxation contingencies), pages 129 to 131
(note 15 – Income taxes) and page 71 (Audit Committee report)
• The risk Tax legislation in Kazakhstan continues to evolve
and can be open to different interpretations. Changes to the
Kazakhstan tax legislations and new interpretations of existing
legislation could impact the Group’s financial position and results.
Consequently, provisions for tax contingencies require the
Group to make judgements and estimates in relation to tax
risks the outcomes of which can be less predictable than in
many other jurisdictions.
seeking to understand the current status of the tax claims and
reviewing recent correspondence with the tax authorities to
challenge the Group’s view on the quantification, classification
and disclosure of tax claims. We challenged the judgements
inherent in the classification of tax claims made by the Group
and the basis of accounting for provisions or refunds based on
our knowledge of the Kazakhstan tax legislation. We involved
our tax specialists in Kazakhstan and the UK to assist the Group
audit team in making this assessment. We considered the
adequacy of the Group’s disclosures in respect of tax and
uncertain tax positions.
• Our findings We found the Group’s judgements as to the
amounts recognised as provisions at 31 December 2013 to
be acceptable though somewhat cautious. We found that the
disclosures in notes 4, 15 and 37 provide a balanced description
of the current status of tax claims and risks.
The audits of components located in the United Kingdom were
performed by the Group audit team. Detailed audit instructions
were sent to the KPMG member firms carrying out the audits
of the reporting components in Kazakhstan and Kyrgyzstan.
These instructions covered the significant audit areas that should
be covered by these audits (which included the relevant risks of
material misstatement detailed above) and set out the information
required to be reported back to the Group audit team. The Group
audit team visited the Kazakhstan and Kyrgyzstan component teams
on six separate occasions during the year for oversight of the
planning and performance of the audits in Kazakhstan and
Kyrgyzstan, and to attend meetings with key management
personnel in Kazakhstan.
The audits undertaken at the reporting components of the
Group were very largely performed to local materiality levels as
the majority of components also prepare local statutory accounts.
The audits undertaken for Group reporting purposes at the key
reporting components were all performed to materiality levels
set by, or agreed with, the Group audit team. These materiality
levels were set individually for each component and ranged from
$1.5 million to $25 million.
4 Our opinion on other matters prescribed by the
Companies Act 2006 is unmodified
In our opinion:
• the part of the Directors’ Remuneration Report to be audited
has been properly prepared in accordance with the Companies
Act 2006; and
• the information given in the Strategic Report and Directors’
Report for the financial year for which the financial statements
are prepared is consistent with the financial statements.
3 Our application of materiality and an overview
of the scope of our audit
The materiality for the Group financial statements as a whole
was set at $31 million. This has been determined with reference
to a benchmark of revenue which we consider to be one of the
principal considerations for members of the Company in assessing
the financial performance of the Group and to be a more stable
benchmark year on year compared to a profit benchmark. The
materiality of $31 million represents 1% of the chosen benchmark.
5 We have nothing to report in respect of the matters
on which we are required to report by exception
Under ISAs (UK and Ireland) we are required to report to you
if, based on the knowledge we acquired during our audit, we
have identified other information in the 2013 Annual Report and
Accounts that contains a material inconsistency with either that
knowledge or the financial statements, a material misstatement of
fact, or that is otherwise misleading. In particular, we are required
to report to you if:
We agreed with the Audit Committee to report to it the following
misstatements that we identified through our audit: (i) all material
corrected misstatements over $31 million, (ii) uncorrected
misstatements with a value in excess of $2 million for income
statement items (or $4 million for balance sheet reclassifications)
and (iii) other misstatements below those thresholds that we
believe warranted reporting on qualitative grounds.
• we have identified material inconsistencies between the
knowledge we acquired during our audit and the Directors’
statement that they consider that the 2013 Annual Report
and Accounts and financial statements taken as a whole is fair,
balanced and understandable and provides the information
necessary for shareholders to assess the Group’s performance,
business model and strategy; or
Audits for Group reporting purposes were carried out at six
reporting components located in Kazakhstan and Kyrgyzstan
(of which one represents an individually significant reporting
component) and eight reporting components in the United
Kingdom (of which one represents an individually significant
reporting component). Audits for Group reporting purposes
covered 98% of revenue from continuing operations;
97% of loss before taxation; and 99% of total assets.
• the Audit Committee report does not appropriately address
matters communicated by us to the Audit Committee.
96
Under the Companies Act 2006 we are required to report
to you if, in our opinion:
• adequate accounting records have not been kept by the
Parent Company, or returns adequate for our audit have
not been received from branches not visited by us; or
• the Parent Company financial statements and the part of
the Directors’ Remuneration Report to be audited are not
in agreement with the accounting records and returns; or
• certain disclosures of Directors’ remuneration specified by
law are not made; or
• we have not received all the information and explanations
we require for our audit.
Under the Listing Rules we are required to review:
• the Directors’ statement, set out on page 90, in relation to
going concern; and
• the part of the Corporate Governance Report on pages 60 to
75 relating to the Parent Company’s compliance with the nine
provisions of the 2010 UK Corporate Governance Code
specified for our review.
We have nothing to report in respect of the above responsibilities.
Scope of report and responsibilities
As explained more fully in the Directors’ Responsibilities
Statement set out on page 91, the Directors are responsible for
the preparation of the financial statements and for being satisfied
that they give a true and fair view. A description of the scope of an
audit of financial statements is provided on the Financial Reporting
Council’s website at www.frc.org.uk/auditscopeukprivate. This
report is made solely to the Company’s members as a body and
subject to important explanations and disclaimers regarding our
responsibilities, published on our website at www.kpmg.com/uk/
auditscopeukco2013a, which are incorporated into this report as
if set out in full and should be read to provide an understanding
of the purpose of this report, the work we have undertaken and
the basis of our opinions.
Jimmy Daboo (Senior Statutory Auditor)
for and on behalf of KPMG Audit Plc, Statutory Auditor
Chartered Accountants
15 Canada Square
London, E14 5GL
26 February 2014
4
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97
Consolidated income statement
Year ended 31 December 2013
Revenues
Cost of sales
Gross profit
Selling and distribution expenses
Administrative expenses
Net other operating expenses
Impairment losses
(Loss)/profit before finance items and taxation
Analysed as:
Profit before finance items and taxation (excluding special items)
Special items
Finance income
Finance costs
(Loss)/profit before taxation
Income tax expense
(Loss)/profit for the year from continuing operations
Loss for the year
Attributable to:
Equity holders of the Company
Notes
5(b)
7(a)
7(b)
7(c)
7(d)
8
6
14
14
15(a)
10(d)
2013
2012
3,099
(2,110)
989
(73)
(819)
(10)
(689)
(602)
3,353
(2,023)
1,330
(64)
(805)
(17)
(202)
242
166
(768)
45
(124)
(681)
(127)
(808)
442
(200)
64
(155)
151
(86)
65
(1,224)
(2,032)
(2,335)
(2,270)
(2,030)
(2)
(2,032)
(2,271)
1
(2,270)
Earnings per share attributable to equity holders of the Company
– basic and diluted
From continuing operations ($)
From discontinued operations ($)
16(a)
16(a)
(1.57)
(2.39)
(3.96)
0.12
(4.45)
(4.33)
EPS based on Underlying Profit – basic and diluted
From continuing operations ($)
From discontinued operations ($)
16(b)
16(b)
0.04
0.33
0.37
0.36
0.58
0.94
98
xx Lorem ipsum
xx Lorem ipsum
xx Lorem ipsum
xx Lorem ipsum
$ million
Notes
Consolidated statement of comprehensive income
Loss for the year
Other comprehensive income/(expense) for the year after tax:
Items that will never be reclassified to the income statement:
Actuarial losses on employee benefits, net of tax
31
Items that are or may be reclassified subsequently to the income statement:
Exchange differences on retranslation of foreign operations
Recycling of exchange differences on disposal of subsidiary
Recycling of capital reserves on disposal of associate
Share of other comprehensive losses of joint venture
Share of other comprehensive losses of associate
9(a)
9(b)
21
22
Other comprehensive income/(expense) for the year
Total comprehensive expense for the year
Attributable to:
Equity holders of the Company
2013
(2,032)
2012
(2,270)
(22)
(22)
–
–
(60)
2
511
(12)
(75)
366
344
(1,688)
(50)
–
–
(9)
(33)
(92)
(92)
(2,362)
(1,686)
(2)
(1,688)
(2,363)
1
(2,362)
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99
Consolidated balance sheet
At 31 December 2013
$ million
Notes
Assets
Non-current assets
Intangible assets
Property, plant and equipment
Mining assets
Investment in joint venture
Investment in associate
Other non-current assets
Deferred tax asset
Current assets
Inventories
Prepayments and other current assets
Income taxes receivable
Trade and other receivables
Investments
2013
2012
18
19
20
21
22
23
15(b)
52
2,754
558
–
–
647
21
4,032
64
2,448
614
927
2,027
532
87
6,699
24
25
610
325
59
235
625
1,715
3,569
1,018
4,587
8,619
750
380
30
122
515
1,246
3,043
251
3,294
9,993
171
2,650
(541)
1,937
4,217
4
4,221
200
2,650
(932)
4,341
6,259
6
6,265
30
15(b)
31
32
2,608
14
477
98
3,197
2,439
1
330
100
2,870
33
30
631
503
9
53
5
1,201
–
1,201
4,398
8,619
622
29
1
43
5
700
158
858
3,728
9,993
26
27
28
Assets classified as held for sale
Total assets
Equity and liabilities
Equity
Share capital
Share premium
Capital reserves
Retained earnings
Attributable to equity holders of the Company
Total equity
Non-current liabilities
Borrowings
Deferred tax liability
Employee benefits
Provisions
Current liabilities
Trade and other payables
Borrowings
Income taxes payable
Employee benefits
Provisions
Liabilities directly associated with assets classified as held for sale
Total liabilities
Total equity and liabilities
These financial statements were approved by the Board of Directors on 26 February 2014.
Signed on behalf of the Board of Directors
Oleg Novachuk
Chief Executive Officer
Andrew Southam
Chief Financial Officer
100
29(a)
29(c)
31
32
xx Lorem ipsum
xx Lorem ipsum
xx Lorem ipsum
xx Lorem ipsum
$ million
Notes
Consolidated statement of cash flows
Cash flows from operating activities
Cash flow from operations before interest, income taxes and dividends from associate
and joint venture
Interest paid
Income taxes paid
Dividends from associate and joint venture
Net cash flows from operating activities
Cash flows from investing activities
Interest received
Proceeds from disposal of property, plant and equipment and mining assets
Purchase of intangible assets
Purchase of property, plant and equipment
Investments in mining assets
Licence payments for subsoil contracts
Acquisition of non-current investments
Acquisition of non-controlling interest in subsidiary
Movement in short-term bank deposits
Proceeds from disposal of associate
Disposal of subsidiary, net of cash disposed
Net cash flows used in investing activities
Cash flows from financing activities
Purchase of own shares under the Group’s share buy-back programme
Proceeds from borrowings – net of arrangement fees paid of $22 million (2012: $18 million)
Repayment of borrowings
Dividends paid by the Company
Net cash flows from financing activities
Net increase in cash and cash equivalents
Cash and cash equivalents at the beginning of the year
Effect of exchange rate changes on cash and cash equivalents
Cash and cash equivalents at the end of the year
34
29(a)
35
9(b)
17(a)
35
35
28
2013
2012
504
(156)
(67)
–
281
832
(85)
(142)
87
692
12
38
(18)
(1,120)
(147)
(6)
(3)
–
(110)
875
27
(452)
15
51
(13)
(1,019)
(209)
(5)
(15)
(2)
282
–
3
(912)
–
790
(107)
(42)
641
(88)
1,183
(614)
(121)
360
470
1,250
(5)
1,715
140
1,111
(1)
1,250
The consolidated statement of cash flows includes cash flows from both continuing and discontinued operations.
4
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101
Consolidated statement of changes in equity
$ million
Notes
At 1 January 2012
Share capital
Attributable to equity holders of the Company
Retained
Share
Capital
earnings
premium
reserves1
Total
8,825
7
8,832
(2,271)
(2,271)
1
(2,270)
–
(50)
–
(50)
(9)
–
(9)
–
(9)
–
(33)
–
(33)
–
(33)
–
–
(92)
(2,363)
1
(2,362)
29(a)
39
–
–
–
–
–
–
(2)
–
(2)
6
29(b)
17(a)
–
–
200
–
–
2,650
Loss for the year
Exchange differences on retranslation
of foreign operations
Recycling of exchange differences
on disposal of subsidiary
9(a)
Recycling of capital reserves on disposal
of associate
9(b)
Share of losses of joint venture recognised
in other comprehensive income
21
Net share of losses of associate recognised
22
Actuarial losses on employee benefits,
net of $5 million tax
31
Total comprehensive expense for the year
Share-based payment
39
Purchase of Company’s share capital
on disposal of associate
29(a),(c)
17(a)
At 31 December 2013
–
–
–
–
(60)
–
(60)
–
(60)
–
–
2
–
2
–
2
–
–
511
–
511
–
511
–
–
(12)
–
(12)
–
(12)
–
–
(75)
–
(75)
–
(75)
–
–
–
–
–
–
–
366
–
(22)
(2,052)
5
(22)
(1,686)
5
–
(2)
–
(22)
(1,688)
5
25
–
(541)
(315)
(42)
1,937
(319)
(42)
4,217
–
–
4
(319)
(42)
4,221
1
Refer to note 29(c) for an analysis of ‘Capital reserves’.
102
2,650
–
–
–
–
–
(50)
21
–
–
22
–
(29)
–
171
–
–
2,650
(840)
Total equity
6,815
(Loss)/profit for the year
Exchange differences on retranslation
of foreign operations
Share of losses of joint venture recognised
Net share of losses of associate recognised
Total comprehensive (expense)/income
for the year
Acquisition of non-controlling interest
in subsidiary
Share-based payment
Own shares acquired under the Group’s
share buy-back programme
At 31 December 2012
200
Noncontrolling
interests
–
–
(932)
–
(2,271)
–
6
–
6
(88)
(121)
4,341
(88)
(121)
6,259
–
–
6
(88)
(121)
6,265
(2,030)
(2,030)
(2)
(2,032)
Notes to the consolidated financial statements
1. Corporate information
Kazakhmys PLC (the ‘Company’) is a public limited company
incorporated in the United Kingdom of Great Britain and Northern
Ireland. The Company’s registered office is 6th Floor, Cardinal
Place, 100 Victoria Street, London SW1E 5JL, United Kingdom.
The Group comprises the Company and its consolidated subsidiaries.
The Group operates through three divisions within the natural
resources sector, the principal activities of which during 2013 were:
Operating division
Principal activity
Primary country
of operations
Kazakhmys Mining
Mining and processing
copper and other metals
Kazakhstan
MKM
Kazakhmys Power
Copper processing
Power generation
Germany
Kazakhstan
MKM for the years ended 31 December 2013 and 2012 is included
as a discontinued operation within the consolidated financial
statements (see note 10(d)). MKM was sold on 28 May 2013
(see note 9(a)).
The legal names of the constituent companies within the above
divisions are shown in note 40(n) on page 160.
2. Basis of preparation
The financial statements set out on pages 98 to 160 have been
prepared using consistent accounting policies. The Company has
taken the exemption under section 408 of the Companies Act
2006 and has not published the Company’s income statement
and related notes.
(a) Going concern
The Group’s business activities, together with the factors likely
to impact its future growth and operating performance are set
out in the Operating Review on pages 30 to 37. The financial
performance and position of the Group, its cash flows and
available debt facilities are described in the Financial Review on
pages 38 to 47. In addition, note 36 commencing on page 144 sets
out the Group’s objectives, policies and processes for managing its
capital structure, liquidity position and financial risks arising from
exposures to commodity prices, interest rates, foreign exchange
and counterparties.
In 2013, the Group completed the disposal of its investment in
ENRC for $875 million and agreed the sale of its 50% investment
in the Ekibastuz GRES-1 power station for $1.25 billion. The
proceeds from the sale of Ekibastuz GRES-1 are expected in the
first half of 2014, and will significantly strengthen the balance sheet
as the Group proceeds with the development of the two major
growth projects.
At 31 December 2013, the Group’s net debt was $771 million
with total undrawn committed facilities of $1.54 billion. The net
sales proceeds from the Ekibastuz GRES-1 disposal of $1.25 billion
will significantly enhance the Group’s liquidity position and provide
greater financial security until the first of the Group’s major
growth projects comes on stream.
During 2013, the Group had fully drawn its $2.7 billion loan
facilities for the funding of the Group’s major development project
at Bozshakol, the gold/copper project at Bozymchak and other
mid-sized projects. The first principal repayments commenced
in 2013 with $107 million repaid to date. The maturity profile of
the Group’s outstanding debt is long dated with the total drawn
balance of $2.6 billion repayable in maturities extending out for
12 years. In January 2014, $400 million of this facility relating to
two mid-sized projects was repaid early as development of these
projects is not expected to commence in the near term.
In 2011, the Group signed a $1.5 billion loan facility with the
CDB, to be used for the development of the major copper
project at Aktogay. Of this facility $57 million was drawn down
at 31 December 2013. The funds are available to draw down
over a three year period commencing from 31 December 2012
and mature 15 years from the date of the first draw down.
At 31 December 2013, $1.44 billion remained undrawn under
the facility.
In December 2012, the Group signed a five year pre-export
finance facility for $1.0 billion to provide additional liquidity during
the period of the development of the major development projects
at Bozshakol and Aktogay and for general corporate purposes.
The facility was reduced to $500 million on 31 December 2013,
being the amount drawn at the end of the availability period.
The principal repayments will amortise over a three year period
commencing in January 2015 until final maturity in December 2017.
In addition, the Group has a $100 million revolving credit facility
available for standby liquidity and general corporate purposes.
This facility has remained undrawn since inception. Therefore, the
Group has future funding and additional liquidity of $1.54 billion
available in the short to medium term, with $1.44 billion of this
amount available only for the development of the Aktogay
copper project.
The Directors have considered the Group’s financial position,
the available borrowing facilities, the planned capital expenditure
programme and the outlook for the Group’s products and major
projects, and believe there is sufficient funding available to meet
the Group’s anticipated cash flow requirements. The Board is
mindful of the Group’s exposure to a single commodity and to
the successful delivery of the Group’s major growth projects in the
medium term. A severe downturn in the copper price or material
adverse developments on the growth projects would impact
future funding requirements.
After making appropriate enquiries, the Directors have a
reasonable expectation that the Group has adequate resources
to continue in operational existence for the foreseeable future.
Accordingly, they continue to adopt the going concern basis of
accounting in preparing the consolidated financial statements.
(b) Basis of accounting
The consolidated financial statements have been prepared on
a historical cost basis, except for derivative financial instruments
which have been measured at fair value. The consolidated financial
statements are presented in US dollars ($) and all financial
information has been rounded to the nearest million dollars
($ million) except when otherwise indicated.
(c) Basis of consolidation
The consolidated financial statements set out the Group’s financial
position as at 31 December 2013 and the Group’s financial
performance for the year ended 31 December 2013.
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103
The Group manages liquidity risk by maintaining adequate committed
borrowing facilities and working capital funds. The Board monitors
the net debt level of the Group taking into consideration the
expected outlook of the Group’s financial position, cash flows
and future capital commitments. The Group adopts a prudent
approach in managing its liquidity risk, reflecting the volatility
in commodity prices.
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4
Notes to the consolidated financial statements continued
2. Basis of preparation continued
Subsidiaries are those enterprises controlled by the Group.
Control exists when the Group has the power, directly or
indirectly, to govern the financial and operating policies of an
enterprise so as to obtain benefits from its activities. Subsidiaries
are consolidated from the date on which control is transferred to
the Group and cease to be consolidated from the date on which
control is transferred out of the Group. When the Group ceases
to have control, any retained interest in the entity is remeasured
to its fair value, with the change in carrying amount recognised in
the income statement. The fair value is the initial carrying amount
for the purposes of subsequently accounting for the retained
interest as an associate, joint venture or financial asset. In addition,
any amounts previously recognised in other comprehensive income
in respect of that entity are accounted for as if the Group had directly
disposed of the related assets or liabilities. This treatment may
mean that amounts previously recognised in other comprehensive
income are recycled through the income statement.
The financial statements of subsidiaries are prepared for the
same reporting year as the Company, using consistent accounting
policies. All intercompany balances and transactions, including
unrealised profits arising from intra-group transactions, have been
eliminated in full. Unrealised losses are eliminated in the same way
as unrealised gains except that they are only eliminated to the
extent that there is no evidence of impairment.
Non-controlling interests primarily represent the interests in
Kazakhmys LLC not held by the Company. The Company treats
transactions with non-controlling interests as transactions with
equity owners of the Company. For purchases from noncontrolling interests, the difference between any consideration
paid and the relevant share of the carrying value of net assets of
the subsidiary acquired is recorded in equity. Gains or losses on
disposals to non-controlling interests are also recorded in equity.
•
The Group has not early adopted any standards, interpretations
or amendments that were issued but are not yet effective.
The new standards and interpretations issued by the IASB that are
relevant to the Group for first time application for the year ended
31 December 2013 were endorsed by the EU for application later
than 1 January 2013 (refer to note 2(f)). Consequently, the Group
has not adopted any of these standards and interpretations for the
year ended 31 December 2013.
(f) New standards and interpretations not yet adopted
In preparing the consolidated financial statements, the Group has
not applied the following relevant standards and interpretations.
The Group’s adoption of these standards and interpretations
is dependent on the date they become effective for application
in the EU:
•
•
Refer to note 40(n) for a list of the Company’s significant
subsidiaries.
(d) Statement of compliance
The consolidated financial statements of the Company and all
its subsidiaries have been prepared in accordance with IFRSs as
issued by the International Accounting Standards Board (IASB)
and interpretations issued by the International Financial Reporting
Interpretations Committee (IFRIC) of the IASB, as adopted by
the European Union (EU), and in accordance with the provisions
of the Companies Act 2006.
•
(e) Adoption of standards and interpretations
In preparing the consolidated financial statements, the Group has
applied the following standard on its effective date:
•
•
104
IAS 19 ‘Employee Benefits (Revised)’. The Group has adopted
IAS 19 (revised) with effect from 1 January 2013; the standard
requires the immediate recognition of actuarial gains and losses
in other comprehensive income and eliminates the corridor
approach. This has not had a material impact on the financial
position or performance of the Group. Consequently, no
adjustment has been made to the comparative financial
information as at 31 December 2012;
IFRS 13 ‘Fair Value Measurement’, issued in May 2011 and
endorsed by the EU in December 2012, is a new standard
that aims to improve consistency and reduce complexity of fair
value measurement techniques adopted in financial statements.
As the requirements, which are largely aligned between IFRSs,
do not extend the use of fair value accounting but provide
guidance on how it should be applied where its use is already
required or permitted by other standards within IFRSs, the
adoption of the standard did not have a material impact on
the financial position or performance of the Group; and
IFRIC 20 ‘Stripping Costs in the Production Phase of a Surface
Mine’ issued in October 2011 and endorsed by the EU in
December 2012. This interpretation applies to the treatment
of waste removal (stripping) costs incurred in surface mining
activity during the production phase of a mine. The adoption
of the interpretation did not have a material impact on the
financial position or performance of the Group.
•
IFRS 9 ‘Financial Instruments’, IASB effective date and EU
endorsement date has yet to be determined. Based on the
nature of the Group’s financial assets, the adoption of the
standard is not expected to have a material impact on the
financial position or performance of the Group;
IFRS 10 ‘Consolidated Financial Statements’, issued in May 2011,
replaces the consolidation requirements in SIC-12 ‘ConsolidationSpecial Purpose Entities’ and IAS 27 ‘Consolidated and
Separate Financial Statements’. This standard builds on
existing principles by identifying the concept of control as the
determining factor in whether an entity should be included
within the consolidated financial statements of the parent
company. The standard provides additional guidance to assist
in the determination of control where this is difficult to assess.
The standard has been endorsed by the EU and is effective for
the accounting period beginning on 1 January 2014. The Group
is currently assessing the impact of IFRS 10 on its financial
position and performance;
IFRS 11 ‘Joint Arrangements’, issued in May 2011, replaces
IAS 31 ‘Interests in joint ventures’. The standard establishes
accounting principles based on the rights and obligations of
the joint arrangement rather than its legal form. The standard
introduces two types of joint arrangement – joint operations
and joint ventures – and eliminates proportionate consolidation
for any form of joint arrangement. The standard has been
endorsed by the EU and is effective for the accounting period
beginning on 1 January 2014. The Group is currently assessing
the impact of IFRS 11 on its financial position and performance;
IFRS 12 ‘Disclosure of Interests in Other Entities’, issued in
May 2011, is a new standard that establishes the disclosure
requirements for all entities that a Group has an interest in,
including subsidiaries, joint arrangements, associates, special
purpose vehicles and other off-balance sheet vehicles. The
standard has been endorsed by the EU and is effective for the
accounting period beginning on 1 January 2014. The Group is
currently assessing the impact of IFRS 12 on its financial
position and performance; and
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•
Improvements to IFRSs. There are a number of amendments
to certain standards following the 2012 annual improvements
project which have not yet been endorsed by the EU. The
impact of any consequential changes to the consolidated
financial statements is not likely to be significant.
(g) Change in accounting policies
The Group adopted IAS 19 (revised) from 1 January 2013, see
note 2(e), changing the Group’s accounting policy on employee
benefits. All other accounting policies adopted in the preparation
of the consolidated financial statements are consistent with those
followed for the year ended 31 December 2012.
(h) Comparative information
Where a change in the presentation format of the consolidated
financial statements has been made during the year, comparative
figures have been restated accordingly.
Following the Group’s irrevocable undertaking to accept the
proposed offer for the sale of the Group’s shareholding in ENRC,
the ENRC investment has been reclassified as a discontinued
operation at 24 June 2013. The share of profits from ENRC for
the period 1 January 2013 to 24 June 2013 is reported within
discontinued operations in the consolidated income statement.
In addition, following the Group’s acceptance of an offer for the
sale of the Group’s 50% joint venture in Ekibastuz GRES-1 and
the Group’s investment in Kazhydrotechenergo LLP (‘Kaz Hydro’)
on 5 December 2013, these investments have been reclassified
as an asset held for sale with Ekibastuz GRES-1 as a discontinued
operation at that date.
The share of profits from Ekibastuz GRES-1 for the period
1 January 2013 to 5 December 2013 is reported within
discontinued operations in the consolidated income statement.
The consolidated income statement for the prior year has been
restated to conform to this presentation for both ENRC and
Ekibastuz GRES-1.
3. Summary of significant accounting policies
As a result of an amendment to IAS 1, items are grouped in
other comprehensive income based on whether or not they are
subsequently reclassified to the income statement. Comparative
information has been aligned with current year presentation.
The following significant accounting policies have been applied in
the preparation of the consolidated financial statements. These
accounting policies have been consistently applied across the Group.
The following foreign exchange rates against the US dollar have
been used in the preparation of the consolidated financial statements:
31 December 2013
Spot
Average
Kazakhstan tenge
Kyrgyz som
Euro
UK pounds sterling
153.61
49.25
0.75
0.61
152.13
48.44
0.73
0.64
31 December 2012
Spot
Average
150.74
47.40
0.76
0.62
149.11
47.01
0.78
0.63
(b) Business combinations
The Group applies the purchase method to account for business
combinations. On the acquisition of a subsidiary, the purchase
consideration is allocated to the identifiable assets, liabilities and
contingent liabilities (identifiable net assets) on the basis of fair values
at the date of acquisition. Those mining rights, mineral reserves and
resources that are able to be reliably valued are recognised in the
assessment of fair values on acquisition. Other potential reserves,
resources and mineral rights, for which in the Directors’ opinion,
values cannot be reliably determined, are not recognised.
The consideration transferred (cost of acquisition) is the aggregate
of: (a) the fair values at the date of exchange, of assets transferred,
liabilities incurred or assumed, and equity instruments issued by the
Group; and (b) the fair value of any asset or liability resulting from
a contingent consideration arrangement. Acquisition-related costs
are expensed as incurred in the income statement.
When the cost of acquisition exceeds the fair value attributable
to the Group’s share of the identifiable net assets, the difference
is treated as purchased goodwill.
If the fair value attributable to the Group’s share of the identifiable
net assets exceeds the fair value of the consideration, the Group
reassesses whether it has correctly identified and measured the
assets acquired and liabilities assumed and recognises any additional
assets or liabilities that are identified in that review. If that excess
remains after reassessment, the Group recognises the resulting
gain in the income statement on the acquisition date.
When a subsidiary is acquired in a number of stages, the
acquisition date carrying value of the acquirer’s previously held
equity interest in the acquiree is remeasured to fair value at the
acquisition date through the income statement.
Similar procedures are applied in accounting for the purchases
of interests in associates and joint ventures. Any goodwill arising
on such purchases is included within the carrying amount of the
investment in the associate, but not thereafter amortised. Any
excess of the Group’s share of the net fair value of the associate’s
identifiable assets, liabilities and contingent liabilities over the cost
of the investment is included in the income statement in the period
of the purchase.
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105
(a) Foreign currency translation
The functional currency for each entity in the Group is determined
as the currency of the primary economic environment in which
it operates. Transactions in currencies other than the functional
currency are initially recorded at the functional currency rate
ruling at the date of the transaction. Monetary assets and liabilities
denominated in foreign currencies are retranslated at the rate
of exchange ruling at the balance sheet date. Exchange gains and
losses on settlement of foreign currency transactions translated at
the rate prevailing at the date of the transactions, or the translation
of monetary assets and liabilities at period end exchange rates, are
taken to the income statement. Non-monetary assets and liabilities
denominated in foreign currencies that are stated at historical cost
are translated to the functional currency at the foreign exchange
rate ruling at the date of the transaction.
The functional currency of the Company, the Group’s financing
and holding companies and Kazakhmys Sales Limited is the US
dollar ($) as the majority of the operating activities are conducted
in US dollars. The functional currency of production and
exploration entities within Kazakhmys Mining and Kazakhmys
Power is the Kazakhstan tenge (KZT), the Bozymchak project is
the Kyrgyz som (KGS) and of MKM is the Euro (€). On consolidation,
income statements of subsidiaries are translated into US dollars, at
average rates of exchange. Balance sheet items are translated into
US dollars at period end exchange rates. Exchange differences on
the retranslation are taken to a separate component of equity. All
other exchange differences are charged or credited to the income
statement in the year in which they arise.
4
continued
(c) Intangible assets
(i) Mineral licences and other intangible assets
Mineral licences and other intangible assets, which are acquired
by the Group and which have finite useful lives, are stated at cost
(which comprises purchase price plus any directly attributable
costs of preparing the asset for intended use) less accumulated
amortisation and impairment losses. The cost of intangible assets
acquired in a business combination is its fair value which can be
measured reliably as at the date of acquisition.
(ii) Amortisation
Intangible assets primarily comprise mineral licence acquisition
costs, which are amortised on a unit of production basis.
Amortisation for other intangible assets, which have expected
useful lives of three to ten years, is computed under the straightline method over the estimated useful lives of the assets.
(d) Property, plant and equipment
(i) Initial measurement
Property, plant and equipment is stated at cost less accumulated
depreciation and impairment losses. The cost of an item of
property, plant and equipment comprises its purchase price and
any costs directly attributable to bringing it into working condition
for its intended use. The cost of self-constructed assets includes
the cost of materials, direct labour and an appropriate proportion
of production overheads.
(ii) Depreciation
The cost of each item of property, plant and equipment is
depreciated over its useful life. Each item’s estimated useful life has
due regard to both its own physical life limitations and the present
assessment of economically recoverable reserves of the mine
property at which the item is located. Estimates of remaining useful
lives are made on a regular basis for all mine buildings, plant and
equipment, with annual reassessments for major items. Depreciation
is charged to the income statement on a straight-line basis over the
estimated useful life of the individual asset or on a unit of
production basis depending on the type of asset.
The unit of production method is the ratio of commodity
production in the period to the estimated quantities of commercial
reserves over the life of the mine (using proven and probable
mineral reserves as determined by the Australasian Code for
Reporting of Exploration Results, Mineral Resources and Ore
Reserves of December 2012 (‘JORC code’) on an annual basis)
based on the estimated economically recoverable reserves to
which they relate. Changes in estimates, which affect unit of
production calculations, are accounted for prospectively.
(iv) Repairs and maintenance
Expenditure incurred to replace a component of an item of
property, plant and equipment that is accounted for separately,
is capitalised with the carrying amount of the replaced component
being written off. Repairs and maintenance expenditure is
capitalised if additional future economic benefits will arise from
the expenditure. All other repairs and maintenance expenditure
is recognised in the income statement as incurred.
(v) Leased assets
Leases in which a significant portion of the risks and rewards of
ownership are retained by the lessor and not transferred to the
Group are classified as operating leases. Payments made under
operating leases are charged to the income statement on a
straight-line basis over the period of the lease.
(e) Mining assets
(i) Mineral properties
Costs of acquiring mineral properties are capitalised on the
balance sheet in the year in which they are incurred. Costs
associated with a start-up period for significant developments
are capitalised during the commissioning period (development
expenditure) where the asset is incapable of operating at normal
levels without a commissioning period. Mineral properties are
amortised over the remaining life of the mine using a unit of
production method.
(ii) Mine development costs
Mine development costs are incurred to obtain access to proved
reserves or mineral-bearing ore deposits and to provide facilities
for extracting, lifting and storing minerals. Such costs are, upon
commencement of production, amortised over the remaining life
of the mine using a unit of production method.
(iii) Mine stripping costs
Mine stripping costs incurred in order to access the mineralbearing ore deposits are deferred prior to the commencement
of production. Such costs are amortised over the remaining life
of the mine using a unit of production method.
The cost of removal of the waste material during a mine’s
production phase is deferred if the stripping activity permits an
increase in the output of the mine in future periods through
providing access to additional sources of reserves that will be
produced in future periods. Capitalised stripping costs are amortised
in a systematic manner over the reserves that directly benefit from
the specific stripping activity.
Depreciation commences on the date the assets are used within
the business. Freehold land is not depreciated.
(iv) Exploration and evaluation costs
Exploration and evaluation expenditure for each area of interest
once the legal right to explore has been acquired, other than that
acquired through a purchase transaction, is carried forward as an
asset, within mining assets, provided that one of the following
conditions is met:
The expected useful lives are as follows:
•
Buildings
Plant and equipment
Other
15-40 years
4-25 years
3-15 years
(iii) Construction in progress
Assets in the course of construction are capitalised as a separate
component of property, plant and equipment. On completion, the
cost of construction is transferred to the appropriate category.
Construction in progress is not depreciated.
106
such costs are expected to be recouped through successful
exploration and development of the area of interest or,
alternatively, by its sale;
• exploration and evaluation activities in the area of interest have
not yet reached a stage which permits a reasonable assessment
of the existence or otherwise of economically recoverable
reserves, and active and significant operations in relation
to the area are continuing.
Exploration expenditure which fails to meet at least one of the
conditions outlined above is written off. Administrative and general
expenses relating to exploration and evaluation activities are
expensed as incurred.
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Identifiable exploration and evaluation assets acquired in a
purchase transaction are recognised as assets at their cost, or fair
value if purchased as part of a business combination. Exploration
assets are reassessed on a regular basis and these costs are carried
forward provided that at least one of the conditions outlined
above is met.
Exploration and evaluation assets attributable to producing
interests are amortised over the remaining life of the mine
on a unit of production basis.
(f) Impairment
The carrying values of mining assets, capitalised exploration and
evaluation expenditure and property, plant and equipment are
assessed for impairment when indicators of such impairment exist.
If any indication of impairment exists, an estimate of the asset’s
recoverable amount is calculated.
If the carrying amount of the asset exceeds its recoverable
amount, the asset is impaired and an impairment loss is charged
to the income statement so as to reduce the carrying amount
to its recoverable amount.
Impairment losses related to continuing operations are recognised
in the income statement in those expense categories consistent
with the function of the impaired asset.
An assessment is made at each reporting date as to whether there
is any indication that previously recognised impairment losses may
no longer exist or may have decreased. If such indication exists,
the Group makes an estimate of the recoverable amount.
(i) Calculation of recoverable amount
The recoverable amount of assets is the greater of their value
in use and fair value less costs to sell. In assessing value in use,
the estimated future cash flows are discounted to their present
value using a pre-tax discount rate that reflects current market
assessments of the time value of money and the risks specific to
the asset. This is determined for an individual asset, unless the asset
does not generate cash inflows that are largely independent of
those from other assets or groups of assets. If this is the case, the
recoverable amount is determined for the cash-generating unit to
which the asset belongs. The Group’s cash-generating units are the
smallest identifiable groups of assets that generate cash inflows that
are largely independent of the cash inflows from other assets or
groups of assets.
(g) Equity accounted investments
A joint venture is an entity in which the Group holds a long-term
interest and shares joint control over strategic, financial and
operating decisions with one or more other venturers under
a contractual arrangement.
Entities in which the Group has the ability to exercise significant
influence and which are neither subsidiaries nor joint ventures, are
The Group accounts for investments in joint ventures and
associates using the equity method except when such investments
are classified as held-for sale.
Under the equity method of accounting, the investment in the
joint venture and associate is recognised on the balance sheet
on the date of acquisition at cost, representing the fair value of
the purchase consideration and therefore including any goodwill
on acquisition.
The Group’s income statement reflects the share of a joint
venture’s and associate’s results after tax and the Group’s
statement of comprehensive income includes any amounts
recognised by the joint venture and associate outside of the
income statement. The carrying amount of the investment is
adjusted by the Group’s share of the cumulative post-acquisition
profit or loss net of any impairment losses and dividends receivable
from the joint venture and associate. Where there has been a
change recognised directly in the equity of the joint venture and
associate, the Group recognises its share of such changes in equity.
Adjustments are made in the consolidated financial statements
to eliminate the Group’s share of unrealised gains and losses
on transactions between the Group and the joint venture
or associate.
The carrying values of joint ventures and associates are reviewed
on a regular basis and if an impairment in value has occurred,
it is written off in the period in which those circumstances are
identified. An impairment indicator is deemed to exist where the
carrying value of a listed investment exceeds its market value by
an amount that is significant or for a prolonged period of time,
as envisaged by IAS 39 ‘Financial instruments: recognition and
measurement’. Should an impairment indicator exist, an estimate
of the investment’s recoverable amount is calculated in accordance
with IAS 36 ‘Impairment of assets’. If the carrying amount of the
investment exceeds its recoverable amount, the asset is impaired
and an impairment loss is charged to the income statement so as
to reduce the carrying amount to its recoverable amount.
The Group discontinues its use of the equity method from the
date on which it ceases to have joint control or exert significant
influence, and from that date, accounts for the investment in
accordance with IAS 39 (with its initial cost being the carrying
amount of the joint venture or associate at that date), provided
the investment does not then qualify as a subsidiary.
(h) Inventories
Inventories are valued at the lower of cost and net realisable value.
Cost includes all costs incurred in the normal course of business in
bringing each product to its present location and condition. Cost is
determined on the following bases:
•
•
Raw materials and consumables are valued at cost on a first-in,
first-out (FIFO) basis; and
Work in progress and finished goods are valued at the cost
of production, including the appropriate proportion of
depreciation, labour and overheads based on normal operating
capacity. The cost of work in progress and finished goods is
based on the weighted average cost method.
4
Net realisable value represents estimated selling price in the
ordinary course of business less any further costs expected
to be incurred to completion and disposal.
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(ii) Reversals of impairment
A previously recognised impairment loss is reversed only if there
has been a change in the estimates used to determine the asset’s
recoverable amount since the last impairment loss was recognised.
If this is the case, the carrying amount of the asset is increased to
its recoverable amount. An impairment loss is reversed only to
the extent that the asset’s carrying amount does not exceed
the carrying amount that would have been determined, net
of depreciation or amortisation, if no impairment loss had been
recognised for the asset in prior years. Such reversals are recognised
in the income statement. Impairment losses recognised in relation
to goodwill are not reversed for subsequent increases in its
recoverable amount.
associates. There is a rebuttable presumption of the ability to
exercise significant influence when the Group holds between
20% and 50% of the voting power of another entity.
107
continued
(i) Trade and other receivables
Trade and other receivables do not generally carry any interest
and are normally stated at their nominal value less any impairment.
Impairment losses on trade receivables are recognised within an
allowance account unless the Group considers that no recovery
of the amount is possible, in which case the carrying value of the
asset is reduced directly.
(j) Cash and cash equivalents
Cash and cash equivalents comprise cash at bank and in hand,
short-term deposits held on call or with maturities less than three
months at inception and highly liquid investments that are readily
convertible into known amounts of cash and which are subject
to insignificant risk of changes in value, and bank overdrafts.
(k) Non-current assets held for sale and discontinued
operations
Non-current assets and disposal groups are classified as held
for sale if their carrying amounts will be recovered through a sale
transaction rather than through continuing use. This condition is
regarded as met only when the sale is highly probable and the
assets or disposal groups are available for immediate sale in their
present condition. The Group must be committed to the sale
which should be expected to qualify for recognition as a
completed sale within one year of the date of classification.
Non-current assets (or disposal groups) held for sale are carried
at the lower of the carrying amount prior to being classified as held
for sale, and the fair value less costs to sell. A non-current asset
is not depreciated while classified as held for sale. A non-current
asset held for sale is presented separately in the balance sheet.
The assets and liabilities of a disposal group classified as held for
sale are presented separately as one line in the assets and liabilities
sections on the face of the balance sheet.
An asset or business is considered to be a discontinued operation
if it has been sold or is classified as held for sale and is part of a
single co-ordinated plan to dispose of either a separate major
line of business or is a subsidiary acquired exclusively with a view
to sale. Once an operation has been identified as discontinued,
its net profit is presented separately from continuing operations.
Comparative information is reclassified so that the net profit
of the prior period is also presented separately.
(l) Borrowings
Borrowings are initially recognised at the fair value of the
consideration received less directly attributable transaction costs.
After initial recognition, borrowings are subsequently measured
at amortised cost using the effective interest method.
(m) Employee benefits
(i) Long-term employee benefits
The Group’s entities located in Kazakhstan remit contributions
to defined contribution pension plans on behalf of its employees.
Contributions to be paid by the Group are withheld from
employees’ salaries and are recognised as part of the salary
expense in the income statement as incurred.
The Group’s unfunded defined benefit plans, including the
death and disability plans for current and former employees,
are accounted for in accordance with IAS 19 ‘Employee Benefits
(Revised)’, such that the plan liabilities are measured by actuarial
valuations using the projected unit credit method.
The future benefit that employees have earned is discounted to
determine the present value. The discount rate is determined by
108
reference to the US treasury bond rate adjusted for country
specific inflation and risk. The treasury bond used approximates
to the average maturity profile of the Group’s benefit obligations.
The calculation is performed by a qualified independent actuary.
Actuarial gains and losses arising from experience adjustments and
changes in actuarial assumptions are charged or credited to equity
in other comprehensive income in the period in which they arise
for defined benefit plans not considered to be other long-term
employee benefits. In respect of other long-term employee benefit
plans, namely the Group’s disability benefits obligation, all actuarial
gains and losses are recognised in the income statement in the
period in which they arise. The expense in relation to all long-term
employee benefits is charged to the income statement so as to
match the cost of providing these benefits to the period of service
of the employees.
(ii) Share-based payments
Certain employees of the Group receive part of their
remuneration in the form of share-based payment transactions,
whereby employees render services in exchange for shares or
rights over shares (equity-settled transactions). The cost of equitysettled transactions with employees is measured at fair value at the
date at which they are granted. The fair value of share awards with
market-related vesting conditions is determined using the Monte
Carlo method and the fair value at the grant date is expensed on
a straight-line basis over the vesting period based on the Group’s
estimate of shares that will eventually vest.
The estimate of the number of awards likely to vest is reviewed
at each balance sheet date up to the vesting date at which point
the estimate is adjusted to reflect the actual outcome of awards
which have vested. No adjustment is made to the fair value after
the vesting date even if the awards are forfeited or not exercised.
(n) Own shares
Own equity instruments which are re-acquired either by the
Employee Benefits Trust for the purposes of the Group’s
employee share-based payment plans or by the Company as part
of any share buy-back programmes are recognised at cost and
deducted from equity. No gain or loss is recognised in the income
statement on the purchase, sale, issue or cancellation of the
Group’s own equity instruments. Any difference between the
carrying amount and the consideration paid to acquire such equity
instruments is recognised within equity.
(o) Trust activities
Assets held in trust or in a fiduciary capacity are not treated
as assets of the Group and, accordingly, are not included in
the consolidated financial statements. Transactions entered
into with these trust activities are expensed in the consolidated
financial statements.
(p) Social responsibility costs
The Group is obliged to contribute towards social programmes
for the benefit of the local community at large. The Group’s
contributions towards these programmes are expensed to the
income statement at the point when the Group is committed to
the expenditure.
(q) Provisions
Provisions are recognised when the Group has a present obligation
(legal or constructive) as a result of a past event, and it is probable
that an outflow of resources will be required to settle the obligation
and a reliable estimate can be made of the amount. If the effect of
the time value of money is material, provisions are determined by
discounting the expected future cash flows at a pre-tax rate that
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reflects current market assessments of the time value of money
and, where appropriate, the risks specific to the liability. Where
discounting is used, the increase in the provision due to the passage
of time is recognised as a finance cost.
(i) Site restoration costs
Site restoration provisions are made in respect of the estimated
future costs of closure and restoration, and for environmental
rehabilitation costs (which include the dismantling and demolition
of infrastructure, removal of residual materials and remediation
of disturbed areas) in the accounting period when the related
environmental disturbance occurs. The provision is discounted
where material and the unwinding of the discount is included in
finance costs. Over time, the discounted provision is increased for
the change in present value based on the discount rates that reflect
current market assessments and the risks specific to the liability.
At the time of establishing the provision, a corresponding asset is
capitalised where it gives rise to a future benefit and depreciated
over the remaining life of the mine to which it relates using a unit
of production method. The provision is reviewed on an annual
basis for changes in cost estimates, discount rates or life of
operations. Any change in restoration costs or assumptions will
be recognised as additions or charges to the corresponding asset
and provision when they occur. For permanently closed sites,
changes to estimated costs are recognised immediately in the
income statement.
(ii) Payments for licences
In accordance with the terms of subsoil use contracts, provision is
made for future licence payments when the Group has a present
obligation to repay the costs of geological information provided
for licensed deposits. The amount payable is discounted to its
present value.
(iii) Other
Other provisions are accounted for when the Group has a legal
or constructive obligation for which it is probable there will be
an outflow of resources and for which the amount can be
reliably estimated.
(r) Revenue
Revenue represents the value of goods and services supplied to
third parties during the year. Revenue is measured at the fair value
of consideration receivable, and excludes any applicable sales tax.
Mineral extraction tax is included within cost of sales.
Almost all sales agreements for copper cathodes, copper rods
and copper and zinc concentrate are provisionally priced, (i.e. the
selling price is subject to final adjustment at the end of a quotation
period, typically the average price either for the month or the
month following delivery to the customer), based on the LME
market price for the relevant quotation period stipulated in the
contract. Such a provisional sale contains an embedded derivative
which is required to be separated from the host contract. The host
contract is the sale of a commodity at the provisional invoice price,
and the embedded derivative is the forward contract for which
the provisional sale is subsequently adjusted. At each reporting
date, the provisionally priced metal sales are marked-to-market
(s) Finance income
Finance income comprises interest income on funds invested and
foreign exchange gains. Interest income is recognised as it accrues,
calculated in accordance with the effective interest rate method.
(t) Finance costs
Finance costs comprise interest expense on borrowings which
are not capitalised under the borrowing costs policy (see 2(u)
below), the unwinding of interest cost on provisions and foreign
exchange losses.
(u) Borrowing costs
Borrowing costs directly relating to the acquisition, construction
or production of a qualifying capital project under construction are
capitalised and added to the project cost during construction until
such time as the assets are considered substantially ready for their
intended use i.e., when they are capable of commercial production.
Where funds are borrowed specifically to finance a project, the
amount capitalised represents the actual borrowing costs incurred.
Where surplus funds are available for a short term from money
borrowed specifically to finance a project, the income generated
from the temporary investment of such amounts is also capitalised
and deducted from the total capitalised borrowing cost. Where
the funds used to finance a project form part of general
borrowings, the amount capitalised is calculated using a weighted
average of rates applicable to relevant general borrowings of the
Group during the year. All other borrowing costs are recognised
in the income statement in the period in which they are incurred
using the effective interest rate method.
Borrowing costs that represent avoidable costs not related to
the financing arrangements of the development projects and are
therefore not directly attributable to the construction of these
respective assets are expensed in the period as incurred. These
borrowing costs generally arise where the funds are drawn down
under the Group’s financing facilities, whether specific or general,
which are in excess of the near term cash flow requirements of
the development projects for which the financing is intended,
and the funds are drawn down ahead of any contractual obligation
to do so.
(v) Income tax
Income tax for the year comprises current and deferred tax.
Income tax is recognised in the income statement except to the
extent that it relates to items charged or credited directly to
equity, in which case it is recognised in equity. Excess profits tax is
treated as income tax and forms part of the income tax expense.
Current tax expense is the expected tax payable on the taxable
income for the year and any adjustment to tax payable in respect
of previous years.
Deferred tax is provided using the balance sheet liability method,
providing for temporary differences between the carrying
amounts of assets and liabilities for financial reporting purposes
and the amounts used for taxation purposes. The following
temporary differences are not provided for:
•
those arising on the initial recognition of an asset or liability in
a transaction that is not a business combination and, at the time
of the transaction, affects neither accounting profit nor taxable
profit; and
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109
All revenue is recognised to the extent that it is probable that the
economic benefits will flow to the Group and the revenue can be
reliably measured. Revenue associated with the sale of goods is
recognised in the income statement when all significant risks and
rewards of ownership are transferred to the customer, usually
when title and any insurance risk has passed to the customer and
the goods have been delivered in accordance with the contractual
delivery terms or when any services have been provided.
using forward prices, with adjustments (both gains and losses)
being recorded in revenue in the income statement and in trade
receivables or trade payables in the balance sheet.
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continued
•
investments in subsidiaries where the timing of the reversal
of the temporary difference can be controlled and it is
probable that the temporary difference will not reverse
in the foreseeable future.
Deferred tax assets and liabilities are measured at the tax rates
that are expected to apply to the period when the asset is realised
or the liability is settled, based on the tax rates (and tax laws)
that have been enacted or substantively enacted at the balance
sheet date.
A deferred tax asset is recognised only to the extent that it is
probable that future taxable profits will be available against which
the asset can be utilised. Deferred tax assets are reduced to the
extent that it is no longer probable that the related tax benefit
will be realised.
Deferred tax assets and liabilities are offset if a legally enforceable
right exists to set off current tax assets against current tax liabilities
and the deferred taxes relate to the same taxable entity and the
same taxation authority.
(w) Dividends
Dividends are recognised as a liability in the period in which they
are approved by shareholders. Dividends receivable are recognised
when the Group’s right to receive payment is established.
(x) Financial instruments
The Group recognises financial assets and liabilities on its balance
sheet when it becomes a party to the contractual provisions of
the instrument.
(i) Financial assets
Initial recognition and measurement
Financial assets within the scope of IAS 39 are classified as financial
assets at fair value through profit or loss, loans and receivables,
held-to-maturity investments, available-for-sale financial assets,
or as derivatives designated as hedging instruments in an effective
hedge, as appropriate. The Group determines the classification
of its financial assets at initial recognition.
When financial assets are initially recognised, they are measured
at fair value being the consideration given or received plus directly
attributable transaction costs. Any gain or loss at initial recognition
is recognised in the income statement.
The Group’s financial assets include cash and short-term
investments, trade and other receivables, loans and other
receivables, quoted and unquoted investments and derivative
financial instruments.
The Group’s most significant financial assets, within the scope of
IAS 39, are classified as loans and receivables. Loans and receivables
are non-derivative financial assets with fixed or determinable
payments that are not quoted in an active market. These are
typically loans and receivables created by the Group in providing
money to a debtor.
Subsequent measurement
After initial measurement, loans and receivables are subsequently
measured at amortised cost using the effective interest rate
method (‘EIR’). Amortised cost is calculated by taking into account
any discount or premium on acquisition and fees or costs that are
an integral part of the EIR. The EIR amortisation is included in
finance income in the income statement. Allowance for
impairment is estimated on a case-by-case basis.
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Derecognition
A financial asset is derecognised when the Group loses control
over the contractual rights that comprise that asset. This occurs
when the rights are realised, expire or are surrendered.
Impairment of financial assets
The Group assesses at each balance sheet date whether there is
any objective evidence that a financial asset or group of financial
assets is impaired. A financial asset or group of financial assets is
deemed to be impaired if, and only if, there is objective evidence
of impairment as a result of one or more events that has occurred
after the initial recognition of the asset (an incurred ‘loss event’)
and that loss event has an impact on the estimated future cash
flows of the financial asset or group of financial assets that can
be reliably estimated.
(ii) Financial liabilities
Initial recognition and measurement
Financial liabilities within the scope of IAS 39 are classified as
financial liabilities at fair value through profit or loss, loans and
borrowings, or as derivatives designated as hedging instruments
in an effective hedge, as appropriate. The Group determines
the classification of its financial liabilities at initial recognition.
All financial liabilities are recognised initially at fair value and
in the case of loans and borrowings, plus directly attributable
transaction costs.
The Group’s financial liabilities include trade and other payables,
bank overdrafts, loans and borrowings, financial guarantee
contracts and derivative financial instruments.
The Group’s most significant financial liabilities, within the scope
of IAS 39, are classified as loans and borrowings.
Subsequent measurement
Interest-bearing loans and borrowings are subsequently measured
at amortised cost using the EIR method after initial recognition.
Gains and losses are recognised in the income statement when the
liabilities are derecognised, as well as through the EIR amortisation
process. Amortised cost is calculated by taking into account any
discount or premium on acquisition and fees or costs that are an
integral part of the EIR. The EIR amortisation is included in finance
costs in the income statement.
Derecognition
A financial liability is derecognised when the obligation under
the liability is discharged or cancelled or expires. When an existing
financial liability is replaced by another from the same lender on
substantially different terms, or the terms of an existing liability are
substantially modified, such an exchange or modification is treated
as a derecognition of the original liability and the recognition of a
new liability, and the difference in the respective carrying amounts
is recognised in the income statement.
(iii) Derivative financial instruments
Where the Group enters into derivative contracts that are not
hedging instruments in hedge relationships as defined by IAS 39,
these are carried in the balance sheet at fair value with changes
in fair value recognised in finance income or finance costs in the
income statement.
Derivatives embedded in host contracts are accounted for as
separate derivatives and recorded at fair value if their economic
characteristics and risks are not closely related to those of the host
contracts. These embedded derivatives are measured at fair value
with changes in fair value recognised in the income statement.
Reassessment only occurs if there is a change in the terms of
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the contract that significantly modifies the cash flows that would
have been expected.
(iv) Offsetting of financial instruments
Financial assets and financial liabilities are offset and the net amount
reported in the balance sheet when there is an enforceable legal
right to offset the recognised amounts and there is an intention
to settle on a net basis, or to realise the assets and settle the
liabilities simultaneously.
(v) Fair value of financial instruments
The fair value of financial instruments that are traded in active
markets at each reporting date is determined by reference to
quoted market prices, without any deduction for transaction
costs. For financial instruments not traded in an active market, the
fair value is determined using appropriate valuation techniques.
Such techniques may include using recent arm’s length market
transactions, reference to the current fair value of another
instrument that is substantially the same, discounted cash flow
analysis or other valuation models.
An analysis of fair values of financial instruments and further details
as to how they are measured is provided in Note 36.
4. Significant accounting judgements and key
sources of estimation uncertainty
In the application of the Group’s accounting policies, which are
described in note 3, the Directors are required to make judgements,
estimates and assumptions about the carrying amounts of assets
and liabilities that are not readily apparent from other sources.
Judgements are based on the Directors’ best knowledge of the
relevant facts and circumstances having regard to prior experience,
but actual results may differ from the amounts included in the
consolidated financial statements.
Estimates and associated assumptions are based on historical
experience and other factors that are considered to be relevant.
Actual results may differ from these estimates. The estimates and
underlying assumptions applied are reviewed on an ongoing basis.
Revisions to accounting estimates are recognised in the period in
which the estimate is revised if the revision affects only that period,
or in the period of the revision and future periods if the revision
affects both current and future periods.
(a) Critical judgements in applying the Group’s significant
accounting policies
The following are the critical judgements, apart from those involving
estimations (which are dealt with separately below), which the
Directors believe are likely to have the most significant effect on
the amounts recognised in the consolidated financial statements.
In 2013, the Ministry of Finance continued its legal action over the
remaining $48 million of the $108 million claim, with their appeal
reaching the Supreme Court. In October 2013, the Supreme
Court ruled in favour of Kazakhmys LLC confirming Kazakhmys
LLC’s right to receive the remaining $48 million of the past EPT
payments. Due to the ongoing uncertainty following a legal appeal
by the tax authorities against the Supreme Court’s decision no
credit has been recognised for the year ended 31 December 2013.
Assets held for sale and discontinued operations
On 5 December 2013, the Kazakhmys Board of Directors accepted
an offer from Samruk-Energo, an investment vehicle of the
Government of Kazakhstan, for the sale of the Group’s 50% joint
venture in Ekibastuz GRES-1 and the Group’s investment in
Kaz Hydro for $1,249 million, after transaction costs of $2 million
and the additional $49 million, being the cost of acquiring the
remaining shares held in Kaz Hydro. After considering the status
of the sales process, the Directors believe that it is highly probable
a sale will be complete within 12 months. As a result, the Group’s
investments in Ekibastuz GRES-1 and Kaz Hydro have been classified
as assets held for sale at 31 December 2013, with Ekibastuz GRES-1
being classified as a discontinued operation in the consolidated
income statement for the period ended 5 December 2013 and
for the year ended 31 December 2012.
Equity accounting of associate
At 31 December 2012, the Group owned 26.0% of ENRC PLC,
an internationally diversified mining company listed on the London
Stock Exchange.
The investment was treated as an associate and accounted for
under the equity method in accordance with IAS 28 ‘Investments
in Associates’ as the Directors believed that the Group exerted
significant influence over ENRC. IAS 28 states that there is a
rebuttable presumption that significant influence exists where an
investor holds more than 20% of the voting power of the investee.
Although Kazakhmys did not have representation on the board
of ENRC, the Directors believed that the Group had the ability
to exercise significant influence by virtue of its substantial
shareholding, whereby the Group owned in excess of 25% of the
issued share capital of ENRC and was the single largest shareholder.
This interest conferred upon the Group certain additional rights
and influence under the Companies Act 2006 (CA06) which
allowed the Group to block special resolutions proposed by
ENRC at general meetings. Consequentially, through the
provisions of the CA06, the Group was able to participate
in policy making processes of ENRC, including participation
in rights issues or setting the distribution policy, which formed
part of ENRC’s capital management strategy.
Determination of excess profits taxation (‘EPT’)
In 2011, the Supreme Court of Kazakhstan ruled in favour of
Kazakhmys LLC in relation to past disputes over the interpretation
of the EPT legislation. As part of this ruling, the Supreme Court
also found that Kazakhmys LLC should not have been an EPT
payer in the periods up to and including 2008. Kazakhmys LLC
subsequently submitted a claim for $108 million to the Ministry of
Finance. By 31 December 2012, $60 million had been reimbursed
by set-off against the 2012 tax year income tax and mineral
extraction tax liabilities and was recognised in the consolidated
financial statements as a special item. The remaining $48 million
of the $108 million claim was challenged by the Ministry of Finance,
who believes that this amount relates to periods beyond the
Kazakhstan statute of limitations, and was not reimbursed. As a
result, notwithstanding the previous ruling of the Supreme Court
and the merits of Kazakhmys LLC’s case against the Ministry of
Finance, in light of the ongoing legal actions being taken by
Kazakhmys LLC against the tax authorities, the Directors believed
that there was sufficient uncertainty over the recoverability of this
amount such that an asset was not recognised in the consolidated
financial statements as at 31 December 2012.
The Directors were of the view that the Group had influence
over the acquisition strategy of ENRC by having the ability to block
related party transactions which ENRC had a history of making,
where these transactions are over and above the de-minimis
exemption in the Listing Rules.
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111
4. Significant accounting judgements and key
sources of estimation uncertainty continued
Furthermore, the frequency and nature of meetings between the
two companies changed substantially since the Group increased its
shareholding above 25%.
The Directors therefore believed that it was appropriate
for the Group to equity account for its interest in ENRC in
accordance with IAS 28 up to 24 June 2013, the date on which
it was reclassified as an asset held for sale and ceased to be
equity accounted.
(b) Key sources of estimation uncertainty
The key assumptions concerning the future, and other key sources
of estimation uncertainty at the balance sheet date, that have a
significant risk of causing a material adjustment to the carrying
amounts of assets and liabilities within the next financial year,
are discussed below.
Impairment of assets
The Directors review the carrying value of the Group’s assets to
determine whether there are any indicators of impairment such
that the carrying values of the assets may not be recoverable.
The assessment of whether an indicator of impairment has arisen
can require considerable judgement taking account of future
operational and financial plans, commodity prices, sales demand
and the competitive environment. Where such indicators
exist, the carrying value of the assets of a cash generating unit is
compared with the recoverable amount of those assets, that
is, the higher of net realisable value and value in use, which
is determined on the basis of discounted future cash flows.
This involves management estimates of commodity prices,
market demand and supply, the development of operating
costs, economic and regulatory climates, capital expenditure
requirements, long-term mine plans and other factors.
Any subsequent changes to cash flows due to changes in the above
mentioned factors could impact the carrying value of the assets.
The Group’s asset review has considered the results of the
optimisation programme to date, and the potential for future
savings, when assessing the future economic outlook for assets.
The prospects for the Zhezkazgan Region, a cash generating unit, are
considered challenging. The recoverable amount of the Zhezkazgan
Region cash generating unit is believed by management to be
significantly lower than its carrying value such that an impairment
charge of $575 million has been recognised (see note 8).
The calculation of the fair value less costs to sell of the Group’s
cash-generating units for the impairment review at 31 December
2013 provided a range of outcomes as the calculation is particularly
sensitive to changes in commodity prices, operating cost inflation,
capital expenditure and the discount rate used. Any changes to the
assumptions adopted in the calculation of the fair value less costs
to sell, individually or in aggregate, would result in a different
valuation being determined.
The Directors note that following the impairments recognised
in 2013, the deficit between the Group’s net asset value and its
market capitalisation remains significant. This deficit is largely due
to the fact that under accounting standards, the carrying value
of the assets cannot be negative, whilst the valuation of the same
assets on a discounted cash flow basis may well be. In particular,
whilst the Zhezkazgan Region CGU has been written down to nil,
the forecast discounted cash flows result in a significant negative
amount which cannot be recognised at 31 December 2013.
The Directors have considered this and other circumstances that
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contribute to the difference between the Group’s net asset value
and market capitalisation and believe that despite this difference
there are no further impairments necessary in respect of the
Group’s other cash generating units.
ENRC Investment
At 31 December 2012, the carrying value of the Group’s equity
investment in ENRC of $4,250 million exceeded the market
value of $1,546 million by an amount that the Directors deemed as
significant as envisaged by IAS 39 ‘Financial instruments: recognition
and measurement’. Whilst the market value of the Group’s
investment in ENRC was below its carrying value at 31 December
2011 and 30 June 2012, the impairment reviews performed at
those dates did not result in any impairment charges being
recognised. However, subsequent to those impairment reviews,
the price expectations and outlook for ENRC’s key products
weakened, ENRC announced a revised capital expenditure
programme and in addition, ENRC’s gearing levels increased
significantly. As a result, after taking those developments into
account, the impairment review performed in accordance with
IAS 36 ‘Impairment of assets’, resulted in an impairment charge
of $2,223 million being recognised at 31 December 2012.
In determining the value-in-use of the ENRC investment, the
Directors made assumptions of the future cash flows to be
generated by ENRC using assumptions derived from publically
available information on ENRC’s production volumes and capital
expenditure, inflation, exchange rates and commodity price
forecasts. The calculation of the value-in-use generated a range
of outcomes as the calculation was particularly sensitive to changes
in commodity prices, operating cost inflation, capital expenditure
and the discount rate used. In addition, the valuation of certain of
ENRC’s development assets involved a high degree of judgement
given their relatively early stage in the project lifecycle. Any changes
to the assumptions adopted in the calculation of the value-in-use,
individually or in aggregate, would have resulted in a different
value-in-use being determined. Accordingly, in determining the
valuation point within the range of outcomes determined by the
calculation of the value-in-use, the Directors also considered
ENRC’s market valuation over several historical periods and the
results of recent valuations performed by equity analysts.
The investment was sold for an amount significantly lower than
the carrying amount at 31 December 2012 during 2013 in
connection with an offer for ENRC. The circumstances
surrounding this transaction led the Directors to conclude that
the prospects of the full fundamental value of ENRC being realised
in the ENRC share price were remote in the short to medium
term and the risks of a further erosion of value considerable.
This resulted in an offer price which the Directors considered
did not properly reflect the full fundamental value of the Group’s
investment in ENRC. The Directors have considered whether this
loss is indicative of the impairment recognised at 31 December
2012 being understated and have concluded that the impairment
at that date was appropriate.
Bozymchak
During the year ended 31 December 2012, Kazakhmys Mining
recognised a $162 million impairment charge in respect of the
Bozymchak project in Kyrgyzstan. In determining the value-in-use
of the Bozymchak project, the Directors made estimates of the
future cash flows to be generated by this project with the key
variables being copper and gold price assumptions, capital
expenditure to complete the project and its commissioning
date for commercial production.
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Determination of ore reserves and useful lives of property, plant
and equipment
Reserves are estimates of the amount of product that can be
economically and legally extracted from the Group’s mining
properties. In order to estimate reserves, assumptions are
required about a range of geological, technical and economic
factors, including quantities, grades, production techniques,
recovery rates, production costs, transport costs, commodity
demand, commodity prices and exchange rates.
The Group estimates its ore reserves and mineral resources
based on information compiled by competent persons as defined
in accordance with the JORC code. A review of the Group’s
reserves and resources is undertaken on an annual basis by an
independent competent person.
In assessing the life of a mine for accounting purposes, mineral
reserves are only taken into account where there is a high degree
of confidence of economic extraction (proven and probable
mineral reserves). Since the economic assumptions used to
estimate reserves change from period to period, and as additional
geological data is generated during the course of operations,
estimates of reserves may change from period to period. Changes
in reported reserves may affect the Group’s financial results and
financial position in a number of ways, including the following:
•
•
•
•
asset carrying values may be affected due to changes in
estimated future cash flows;
depreciation, depletion and amortisation charged in the
income statement may change where such charges are
determined by the unit of production basis, or where the
useful economic lives of assets change;
decommissioning, site restoration and environmental provisions
may change where changes in estimated reserves affect
expectations about the timing or cost of these activities; and
the carrying value of deferred tax assets may change due to
changes in estimates of the likely recovery of tax benefits.
There are numerous uncertainties inherent in estimating ore
reserves, and assumptions that are valid at the time of estimation
may change significantly when new information becomes available.
Changes in the forecast prices of commodities, exchange rates,
production costs or recovery rates may change the economic
status of reserves and may ultimately result in reserves being revised.
Zhezkazgan Region
As discussed in note 4(b), following the Group’s asset review which
has considered the results of the optimisation programme to date,
the Zhezkazgan Region, a cash generating unit within Kazakhmys
Mining, has been fully impaired during the year. As a result,
management do not believe that ore reserves of the Region
Employee benefits
The expected costs of providing long term employment benefits
under defined benefit arrangements relating to employee service
during the period are determined based on financial and actuarial
assumptions. Assumptions in respect of the expected costs are
set in consultation with an independent actuary.
During 2011, new legislation was enacted in Kazakhstan which
increased the amounts payable for death and disability benefits.
Under the new legislation, which applies retrospectively, the
benefits payable are calculated on the basis of average salaries
of employees currently in service. Prior to the change in the
legislation, benefits payable were calculated on the basis of historic
salaries that were increased annually by the official inflation rate
prevailing in Kazakhstan. As a result of this new legislation, future
salary increases within the business have to be estimated. Other
key assumptions include the selection of discount and mortality
rates. The discount rate used has been determined by reference
to the US 10 year treasury bond rate adjusted for inflation and
the appropriate country risk factor. The US 10 year treasury bond
rate approximates to the average maturity profile of the Group’s
benefit obligations. Mortality rates are based on the official
mortality table of Kazakhstan published by the Government.
While the Directors believe the assumptions used are appropriate,
a change in the assumptions used would impact the employee
benefit obligation recognised on the balance sheet and hence
the financial performance of the Group.
Provision for environmental pollution charges (‘EPC’)
In May 2012, the Supreme Court of Kazakhstan ruled in favour
of Kazakhmys LLC in its appeal over certain of the claims levied
by the tax authorities. The Supreme Court’s ruling confirmed
the basis used by Kazakhmys LLC in calculating certain of its EPC
liabilities for the periods under audit. Consequently, the Directors
believed that the likelihood of further liabilities or exposures
existing in respect of EPC for the periods 2006 to 2008 was
remote and the provision of $38 million, including fines and
penalties, relating to the possible settlement of some of the
additional liabilities calculated by the tax authorities was released
as at 31 December 2012.
Income taxes
In determining the level of accruals and provisions to be
recognised in respect of any potential exposures for various tax
liabilities, the Directors make estimates in relation to the level
of taxes payable, particularly in relation to transfer pricing, nondeductible items and outcomes of tax disputes. The tax obligations
may then be audited by the tax authorities at a future date which
may also impact the level of accruals and provisions recognised.
For property, plant and equipment depreciated on a straight line
basis over its useful economic life, the appropriateness of the
asset’s useful economic life is reviewed at least annually and any
changes could affect prospective depreciation rates and asset
carrying values.
continue to meet the definition of JORC compliant reserves, i.e.
the section of a mineral resource that is economically mineable
and can be the basis of a technically and economically viable
project under reasonable financial assumptions. Consequently,
the Zhezkazgan Region’s ore reserves have been excluded from
the Group’s ore reserves at 31 December 2013.
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113
5. Segment information
Information provided to the Group’s Board of Directors for the purposes of resource allocation and the assessment of segmental
performance is prepared in accordance with the management and operational structure of the Group. For management and operational
purposes, the Group is organised into three separate businesses as shown below, according to the nature of their operations, endproducts and services rendered. Each of these business units represents an operating segment in accordance with IFRS 8 ‘Operating
segments’. The operating segments of the Group are:
Kazakhmys Mining
The Kazakhmys Mining business is managed as one operating segment and comprises all entities and functions within the Group
responsible for the exploration, evaluation, development, mining and processing of the Group’s mineral resources and sale of the
Group’s metal products. The segment consists of:
• the Group’s main operating entity, Kazakhmys LLC, whose principal activity is the mining and processing of copper and other metals
which are produced as by-products;
• the Group’s smelting operations, Kazakhmys Smelting LLC, whose principal activity is the refining of copper and other metals which are
produced as by-products by Kazakhmys LLC;
• the Group’s UK trading function, Kazakhmys Sales Limited, which is responsible for the purchase of exported products from
Kazakhmys LLC and subsequently applies an appropriate mark-up prior to onward sale to third parties. The UK entity is a sales function
on behalf of the Kazakhmys Mining business and consequently the assets and liabilities related to those trading operations, i.e. trade
payables and trade receivables, are included within the Kazakhmys Mining operating segment;
• the Group’s exploration companies which provide services for greenfield drilling on new projects and deposits, brownfield drilling on
expansion projects and deposits at existing mines, and exploration work for potential new projects and deposits for the Mining
segment;
• the Group’s project companies, whose responsibility is the development of metal production related assets on behalf of the Mining
segment including the evaluation and development of the Group’s major mining projects; and
• the Group’s technical and ancillary services which provide technical, logistics and other services principally to the Mining segment and
which are managed as an extension of the Mining segment.
The financial and operating information used by the Board of Directors for the purpose of resource allocation to all these separate
functions and entities is included within the Mining segment.
Kazakhmys Power
Kazakhmys Power operates in Kazakhstan and consists of the Group’s three captive power stations and the Ekibastuz GRES-1 coal-fired
power station joint venture. The principal activity of the Kazakhmys Power operating segment is the sale of electricity and coal to external
customers and internally to the Kazakhmys Mining segment. The captive power stations and the Group’s 50% interest in the Ekibastuz
GRES-1 coal-fired power station are managed by the same management team and produce discrete financial and operating information
that is used by the Board of Directors for operational and resource allocation decisions. On 5 December 2013 the Group’s Board
of Directors accepted an offer to sell the 50% interest in Ekibastuz GRES-1 and the Group’s investment in Kaz Hydro. The offer was
approved by Kazakhmys shareholders on 7 January 2014 with completion dependent on certain conditions precedent. As a result,
Ekibastuz GRES-1and Kaz Hydro have been classified as assets held for sale with Ekibastuz GRES-1 classified as a discontinued operation
at 5 December 2013. The share of profits from Ekibastuz GRES-1 for the period ended 5 December 2013 is now recognised within
discontinued operations in the consolidated income statement. The consolidated income statement for the comparative period has been
restated to conform to this presentation.
MKM
MKM operates in Germany, where it manufactures copper and copper alloy semi-finished products. The business was sold on
28 May 2013. At 31 December 2012, MKM was classified as an asset held for sale and as a discontinued operation. MKM faced different
risks to the Group’s other businesses, and produced different products. It was therefore shown as a separate operating segment.
Managing and measuring operating segments
The key performance measure of the operating segments is EBITDA (excluding special items), which is defined as profit before interest,
taxation, depreciation, depletion, amortisation, the non-cash component of the disability benefits obligation and mineral extraction tax,
as adjusted for special items. Special items are those items which are non-recurring or variable in nature and which do not impact the
underlying trading performance of the business (see note 6).
The Group’s Treasury department monitors finance income and finance costs at the Group level on a net basis rather than on a gross
basis at an operating segment level.
Inter-segment sales include power sales from Kazakhmys Power to Kazakhmys Mining from the Group’s captive power stations, and coal
sales from Kazakhmys Mining to Kazakhmys Power from the Borly coal mines.
Segmental information is also provided in respect of revenues, by destination and by product. Segmental information relating to
employees is provided in note 11.
114
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(a) Operating segments
(i) Income statement information
$ million
Revenues
Segment sales
Inter-segment sales
Sales to external customers
Gross profit
Operating costs
Impairment losses3
Loss on disposal of subsidiary and
associate4
Segmental (loss)/profit before
finance items and taxation
Share of losses from associate2
Share of profits from joint venture2
Net finance costs
Income tax expense
Loss for the year
$ million
Revenues
Segment sales
Inter-segment sales
Sales to external customers
Gross profit
Operating costs
Impairment losses
Loss on disposal of subsidiary5
Segmental profit/(loss) before
finance items and taxation
Share of losses from associate2
Share of profits from
joint venture2
Net finance (costs)/income
Income tax (expense)/credit
(Loss)/profit for the year
Kazakhmys
Mining
3,058
(55)
3,003
938
(855)
(622)
–
(539)
Kazakhmys
Mining
3,362
(77)
3,285
1,316
(806)
(202)
(8)
300
MKM
595
–
595
28
(29)
(23)
Kazakhmys Corporate
Power1
Services
472
(128)
344
182
(31)
(66)
Total
–
–
–
–
(30)
(3)
4,125
(183)
3,942
1,148
(945)
(714)
(1)
–
(528)
(529)
(25)
85
(561)
(1,040)
(758)
–
(83)
(151)
(2,032)
MKM
1,466
–
1,466
107
(58)
(18)
–
31
Kazakhmys
Power1
Corporate
Services
Total
Discontinued operations2
Income
Joint
Other2
statement
venture1,2
3,099
989
(902)
(689)
–
(602)
–
–
(79)
(127)
(808)
248
131
(14)
(2)
–
115
–
(89)
(3)
(23)
–
595
28
(29)
(23)
(529)
(553)
(758)
89
(1)
(1)
(1,224)
Income
Joint
statement
venture1,2
Other2
459
(101)
358
191
(39)
–
–
–
–
–
–
(55)
–
(13)
5,287
(178)
5,109
1,614
(958)
(220)
(21)
3,353
1,330
(878)
(202)
(8)
290
177
(22)
–
–
1,466
107
(58)
(18)
(13)
152
(68)
415
(2,481)
242
–
155
–
18
(2,481)
–
(93)
(111)
(2,270)
–
(91)
(86)
65
(126)
3
(32)
–
126
(5)
7
(2,335)
For segment reporting, the Group includes its 50% share of the income statement line items that relate to Ekibastuz GRES-1 on a line-by-line basis, whereas in the Group’s
income statement, the financial results of Ekibastuz GRES-1 are included within ‘share of profits from joint venture’ within discontinued operations. On 5 December 2013,
Ekibastuz GRES-1 was reclassified as a discontinued operation following the Board of Directors’ acceptance of an offer from Samruk-Energo for the investment.
2
For the year ended 31 December 2013 discontinued operations comprise the results of MKM for the period up to its disposal on 28 May 2013, the share of post-tax results
from the Group’s investment in Ekibastuz-GRES-1 up to 5 December 2013 and the share of post-tax results from the Group’s investment in ENRC up to 24 June 2013.
For the year ended 31 December 2012 discontinued operations comprised MKM, the Group’s investments in Ekibastuz GRES-1 and ENRC as well as the impact of the
completion adjustment relating to the disposal of Kazakhmys Petroleum (see footnote 5 below).
3
For the year ended 31 December 2013, following the reclassification of ENRC as a discontinued operation, the impairment charge of $823 million recognised to write the
investment down to fair value less costs to sell is included within discontinued operations. The $22 million impairment charge to write down MKM to its fair value less costs
to sell is also included within discontinued operations.
4
On 28 May 2013 the Group sold its German subsidiary, MKM (see note 9(a)). In addition, on 8 November 2013 the Group completed the sale of the Group’s investment
in ENRC recognising a loss on disposal of $528 million (see note 9(b)).
5
In the year ended 31 December 2012 the Group disposed of a subsidiary company in Kazakhstan, included within Kazakhmys Mining, for proceeds of $3 million which
resulted in the recognition of a loss of $8 million on disposal (see note 9(c)). The $13 million loss on disposal within the Corporate Services segment represents the
completion adjustment on the sale of Kazakhmys Petroleum.
1
4
www.kazakhmys.com
115
5. Segment information continued
(ii) Earnings before interest, tax, non-cash component of the disability benefits obligation, depreciation and amortisation (EBITDA)
excluding special items
$ million
Kazakhmys
Mining
(Loss)/profit before finance items and
taxation1
Interest and taxation of joint venture1
Segmental (loss)/profit before
finance items and taxation1
Add: non-cash component of the
disability benefits obligation3
Add: depreciation, depletion and
amortisation
Add: mineral extraction tax4
Segmental EBITDA
Special items – note 6:
Add: additional disability benefits
obligation charge
Add: impairment charges
Add: loss on disposal of assets
Segmental EBITDA
Share of EBITDA of associate2,5
Group EBITDA
116
MKM
Kazakhmys
Power1
Corporate
Services
Total
Income
Joint
Other2
statement
venture1,2
(539)
–
(25)
–
59
26
(561) (1,066)
–
26
(602)
–
89
26
(553)
–
(539)
(25)
85
(561) (1,040)
(602)
115
(553)
26
–
–
–
26
26
–
38
–
153
–
261
242
(10)
–
–
(25)
64
–
149
1
–
(560)
326
242
(446)
288
242
(46)
–
–
(553)
84
617
14
–
22
1
–
52
–
–
1
528
84
692
543
84
670
14
–
–
–
705
–
(2)
–
201
–
(31)
276
873
276
722
–
153
–
(2)
276
705
(2)
201
245
1,149
722
153
274
–
22
529
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$ million
Profit/(loss) before finance items
and taxation1
Interest and taxation of joint venture1
Segmental profit/(loss) before
finance items and taxation1
Add: non-cash component of the
disability benefits obligation3
Add: depreciation, depletion
and amortisation
Add: mineral extraction tax4
Segmental EBITDA
Special items – note 6:
Add: impairment charges
Add: loss on disposal of assets
Segmental EBITDA
Share of EBITDA of associate2,5
Group EBITDA (excluding
special items)
Income
Joint
Other2
statement
venture1,2
Kazakhmys
Mining
MKM
Kazakhmys
Power1
300
–
31
–
123
29
(68)
–
386
29
242
–
126
29
18
–
300
31
152
(68)
415
242
155
18
149
–
–
–
149
149
–
–
251
260
960
–
–
31
56
–
208
310
260
1,134
276
260
927
34
–
189
–
–
18
192
8
17
–
–
–
209
21
192
8
–
–
17
13
1,160
–
48
–
208
–
(52)
548
1,364
548
1,127
–
189
–
48
548
1,160
48
208
496
1,912
1,127
189
596
Corporate
Services
3
–
(65)
–
13
Total
1
As the (loss)/profit for the year from discontinued operations in the consolidated income statement includes the equity accounted profit from the joint venture, Ekibastuz
GRES-1, on a post-interest and tax basis, the joint venture’s interest and taxation expenses are added back to calculate the (loss)/profit before finance items and taxation
from discontinued operations of the Group on a consistent pre-interest and tax basis.
2
For the year ended 31 December 2013, discontinued operations comprise the results of MKM for the period up to 28 May 2013, the share of post-tax results from the
Group’s joint venture investment in Ekibastuz GRES-1 up to 5 December 2013 and the share of results from the Group’s investment in ENRC up to 24 June 2013. For the
year ended 31 December 2012, discontinued operations comprised MKM, the Group’s investments in Ekibastuz GRES-1 and ENRC as well as the impact of the completion
adjustment relating to the disposal of Kazakhmys Petroleum.
3
The non-cash component of the Group’s disability benefits obligation has been excluded from EBITDA as EBITDA, a key financial indicator, is a proxy for cash earnings from
current trading performance. The non-cash component of the disability benefits obligation is determined as the actuarial remeasurement charge recognised in the income
statement less the actual cash payments disbursed during the year in respect of the disability benefits obligation.
4
Mineral extraction tax has been excluded from the key financial indicator of EBITDA. The Directors believe that MET is a substitute for a tax on profits, hence its exclusion
provides a more informed measure of the operational performance of the Group.
5
The share of EBITDA of the associate excludes MET and special items of the associate.
4
www.kazakhmys.com
117
(iii) Balance sheet information
$ million
Assets
Property, plant and equipment, mining assets
and intangible assets2
Intragroup investments
Non-current investments and other assets3
Operating assets4
Current investments
Segment assets
Deferred tax asset
Assets classified as held for sale 1
Elimination
Total assets
Liabilities
Employee benefits and provisions
Operating liabilities5
Segment liabilities
Borrowings
Elimination
Total liabilities
118
Kazakhmys
Mining
MKM1
Kazakhmys
Power1
Corporate
Services
Total
At 31 December 2013
Continuing Discontinued
operations
operations1
3,259
–
587
1,092
50
154
5,142
–
–
–
–
–
–
–
102
–
1,060
49
–
7
1,218
3
2,500
18
257
575
1,554
4,907
3,364
2,500
1,665
1,398
625
1,715
11,267
21
59
–
(2,728)
8,619
3,364
2,500
647
1,398
625
1,715
10,249
21
59
1,018
(2,728)
8,619
622
748
1,370
–
–
–
11
32
43
–
79
79
633
859
1,492
3,111
14
9
(228)
4,398
633
859
1,492
3,111
14
9
(228)
4,398
–
–
1,018
–
–
–
1,018
–
–
(1,018)
–
–
–
–
–
–
–
–
–
–
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$ million
Assets
Property, plant and equipment, mining assets
and intangible assets2
Intragroup investments
Non-current investments and other assets3
Operating assets4
Current investments
Segment assets
Deferred tax asset
Assets classified as held for sale1
Elimination
Total assets
Liabilities
Employee benefits and provisions
Operating liabilities5
Segment liabilities
Borrowings
Liabilities directly associated with assets
classified as held for sale1
Elimination
Total liabilities
Kazakhmys
Mining
MKM1
Kazakhmys
Power1
Corporate
Services
2,968
–
518
1,216
65
147
4,914
23
–
–
224
–
4
251
143
–
941
68
–
20
1,172
15
4,290
2,027
164
450
1,079
8,025
469
605
1,074
6
25
31
9
112
121
–
101
101
Total
At 31 December 2012
Continuing
Discontinued
operations
operations1
3,149
4,290
3,486
1,672
515
1,250
14,362
87
30
–
(4,486)
9,993
3,126
4,290
3,486
1,448
515
1,246
14,111
87
30
251
(4,486)
9,993
23
–
–
224
–
4
251
–
–
(251)
–
–
484
843
1,327
2,593
1
3
478
818
1,296
2,468
1
1
6
25
31
125
–
2
–
(196)
3,728
158
(196)
3,728
(158)
–
–
1
At 5 December 2013, the Group’s investment in Ekibastuz GRES-1 and investment in Kaz Hydro within the Power segment, were classified as assets held for sale and
included within discontinued operations. MKM was sold on 28 May 2013 (see note 9(a)). At 31 December 2012, MKM was classified as an asset held for sale and included
within discontinued operations.
2
Property, plant and equipment, mining assets and intangible assets are located in the principal country of operations of each operating segment, i.e. (i) Kazakhstan –
Kazakhmys Mining and Kazakhmys Power; (ii) Germany – MKM; Kazakhmys Mining also includes $146 million (2012: $57 million) in Kyrgyzstan.
3
Non-current investments and other assets include other non-current investments, non-current VAT receivable and non-current advances paid in both years with the Group’s
investment in Ekibastuz GRES-1 and Kaz Hydro, within the Kazakhmys Power segment and the Group’s investment in ENRC within Corporate Services also being included
at 31 December 2012.
4
Operating assets comprise inventories, prepayments and other current assets and trade and other receivables, including intragroup receivables.
5
Operating liabilities comprise trade and other payables, including intragroup payables.
4
www.kazakhmys.com
119
(iv) Net liquid funds/(debt)
$ million
Current investments
Borrowings3
Inter-segment borrowings4
Net liquid funds/(debt)
$ million
Current investments
Borrowings3
Inter-segment borrowings4
Kazakhmys
Mining
154
50
(1,311)
1,311
204
Kazakhmys
Mining
147
65
(854)
854
212
MKM1
–
–
–
–
–
Kazakhmys
Power2
7
–
(72)
72
7
MKM1
Kazakhmys
Power2
4
–
(125)
–
(121)
20
–
(73)
73
20
Corporate
Services
1,554
575
(3,111)
–
(982)
Corporate
Services
1,079
450
(2,468)
–
(939)
Total
1,715
625
(4,494)
1,383
(771)
Total
1,250
515
(3,520)
927
(828)
At 31 December 2013
operations
operations1
1,715
625
(4,494)
1,383
(771)
–
–
–
–
–
At 31 December 2012
Discontinued
Continuing
operations1
operations
1,246
515
(3,395)
927
(707)
1
MKM was sold on 28 May 2013 (see note 9(a)). At 31 December 2012, MKM was classified as an asset held for sale and included within discontinued operations.
2
Kazakhmys Power represents the Group’s captive power stations.
3
Borrowings of Corporate Services are presented net of capitalised arrangement fees of $40 million (2012: $32 million).
4
Borrowings of Corporate Services include amounts lent to the Kazakhmys Mining and Kazakhmys Power segments.
4
–
(125)
–
(121)
(v) Capital expenditure
$ million
Mining assets
Intangible assets
Capital expenditure
$ million
Mining assets
Intangible assets
Capital expenditure
Kazakhmys
Mining1
1,166
166
17
1,349
Kazakhmys
Mining1
1,011
217
18
1,246
MKM2
9
–
–
9
MKM2
11
–
–
11
Kazakhmys
Power3
Corporate
Services
67
–
–
67
–
–
–
–
Kazakhmys
Power3
Corporate
Services
47
–
–
47
2
–
–
2
Total operations
operations2
1,242
166
17
1,425
1,233
166
17
1,416
9
–
–
9
Continuing
Discontinued
Total
operations
operations2
1,071
217
18
1,306
1,060
217
18
1,295
11
–
–
11
1
Capital expenditure within the Kazakhmys Mining segment includes capitalised depreciation of $10 million (2012: $7 million) and $4 million (2012: $5 million) and
capitalised borrowing costs of $111 million (2012: $36 million) and $15 million (2012: $3 million) related to property, plant and equipment and mining assets respectively.
During the year, the site restoration and clean up provisions within Kazakhmys Mining were reassessed and as a result, reduced by $1 million (2012: $9 million) and $1 million
(2012: $5 million) with a corresponding adjustment to property, plant and equipment and intangible assets, respectively. These amounts are non-cash items and are recorded
within site restoration and clean up provisions and provisions for payments for licences. Capital expenditure also includes non-current advances paid for items of property,
plant and equipment (see note 23).
2
For the period up to MKM’s disposal on 28 May 2013 and for the year ended 31 December 2012, MKM is included within discontinued operations.
3
Kazakhmys Power represents the Group’s captive power stations. During the year, the site restoration and clean up provisions within Kazakhmys Power were reassessed
and as a result, an additional $2 million (2012: $nil) has been recognised with a corresponding adjustment to property, plant and equipment.
120
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(b) Segmental information in respect of revenues
Revenues by product are as follows:
$ million
Kazakhmys Mining
Copper cathodes
Copper rods
Copper in concentrate
Total copper products
Silver (including silver in concentrate)
Gold bullion
Gold doré
Zinc in concentrate
Other by-products
Other revenue
MKM
Wire
Sheets and strips
Tubes and bars
Metal trade
Kazakhmys Power1
Heating and other
Total revenues
1
2013
2012
1,973
85
210
2,268
311
146
6
143
62
67
3,003
2,088
187
–
2,275
414
300
22
154
61
59
3,285
186
263
128
18
595
490
635
309
32
1,466
328
16
344
3,942
3,099
348
10
358
5,109
3,353
2013
2012
522
1,718
599
260
3,099
665
1,769
769
150
3,353
446
10
139
595
1,153
24
289
1,466
214
34
248
3,942
279
11
290
5,109
Kazakhmys Power revenues comprise the external revenues of the Group’s captive power stations and 50% of the revenues of Ekibastuz GRES-1.
Revenues by destination to third parties are as follows:
$ million
Europe
China
Kazakhstan
Other
Discontinued operations – subsidiary
Europe
China
Other
Total revenues
Four customers within the Kazakhmys Mining segment, three of which are collectively under common control, represent 30% of total
Group revenue from continuing operations for the year. The total revenue from these customers is $933 million. The revenue from
the three customers under common control of $656 million represents 21% of the total Group revenue from continuing operations.
Revenues from the fourth major customer of $277 million represent 9% of total Group revenue from continuing operations.
Four customers within the Kazakhmys Mining segment, three of which are collectively under common control, represented 37% of total
Group revenue from continuing operations for the year. The total revenue from these customers was $1,245 million. The revenue from
the three customers under common control of $999 million represented 30% of the total Group revenue from continuing operations.
Revenues from the fourth major customer of $246 million represented 7% of total Group revenue from continuing operations.
www.kazakhmys.com
121
Discontinued operations – share of joint venture’s revenues
Kazakhstan
Other
4
6. Special items
Special items are those items which are non-recurring or variable in nature and which do not impact the underlying trading performance
of the business.
$ million
Special items within (loss)/profit before finance items and taxation:
Additional disability benefits obligation related to previously insured employees
Impairment charges – note 8
Impairment charges against intangible assets
Impairment charges against property, plant and equipment
Impairment charges against mining assets
Provisions raised against inventories
Provisions raised against other assets
Loss on disposal of property, plant and equipment
Special items within (loss)/profit for the year:
Taxation related special items
Recognition of a deferred tax asset on additional disability benefits obligation related to previously
insured employees
Impairment of deferred tax assets recognised in the Zhezkazgan Region
Refund of past EPT payments
Recognition of a deferred tax asset resulting from impairment charges
Deferred tax assets on other special items
Special items within (loss)/profit before finance items and taxation:
Impairment charges – note 8
Impairment charge against property, plant and equipment – MKM
Provisions against inventories – MKM
Loss on disposal of subsidiaries and investment in associate – note 9
Special items within (loss)/profit before taxation:
Impairment charge recognised on remeasurement of the ENRC investment
Associate1
Impairment charge recognised by associate
Onerous contract (utilised)/provided
Acquisition related transaction costs
Net gain arising from business combinations
Special items within (loss)/profit for the year:
Taxation effect of special items
Release of deferred tax liabilities/(assets) resulting from the remeasurement of MKM
Recognition of deferred tax assets on impairment charges recognised by ENRC
1
At 24 June 2013, the Group’s investment in its associate, ENRC, was reclassified to assets held for sale and discontinued operations (see note 22).
122
2013
2012
84
670
7
483
144
4
32
14
14
–
768
–
192
–
110
82
–
–
8
–
8
200
58
(73)
(17)
98
–
(21)
(2)
826
–
–
(60)
(13)
–
127
22
22
–
529
551
17
3
14
13
30
823
30
42
(13)
1
–
1,404
2,223
385
316
85
7
(23)
2,638
4
(14)
1,394
(2)
–
2,636
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7. Cost of sales, selling and distribution expenses, administrative expenses and other operating
income/(expense)
(a) Cost of sales
$ million
2013
2012
513
501
235
483
242
47
22
67
2,110
567
2,677
509
474
219
416
260
34
34
77
2,023
1,359
3,382
2013
2012
27
29
1
3
13
73
16
89
30
24
2
1
7
64
39
103
$ million
2013
2012
Employee salaries and payroll taxes
Personal injury claims
Legal and professional
Transportation
Social responsibility costs
Levies and charges
Depreciation and amortisation
Utilities
Business travel
Medical and social support
Supplies
Communication
Bank fees
Other
250
182
65
57
57
36
35
29
22
24
19
6
2
35
819
14
833
236
207
64
58
52
9
41
23
27
22
16
6
2
42
805
24
829
$ million
2013
2012
Lease income
Depreciation of leased assets
Other (net)
Net other operating expenses attributable to continuing operations
Net other operating income attributable to discontinued operations
21
(18)
–
(14)
1
(10)
1
(9)
18
(16)
(8)
(2)
(9)
(17)
5
(12)
Raw materials
Depreciation, depletion and amortisation
Production overheads
Mineral extraction tax
Other taxes
Utilities
Change in work in progress and finished goods
(b) Selling and distribution expenses
$ million
Transportation expenses
Port charges
Raw materials
Other
(c) Administrative expenses
(d) Other operating (expenses)/income
4
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123
8. Impairment losses
$ million
Impairment charges against intangible assets
Impairment charges against property, plant and equipment – note 8(b) and note 8(g)1
Impairment charges against mining assets – note 8(c) and note 8(g)1
Provisions raised/(released) against inventories – note 8(d)
Provisions raised against other assets – note 8(e)
Provisions raised against trade and other receivables – note 8(f)
Discontinued operations – note 8(h)1
1
2013
7
483
144
11
32
12
689
846
1,535
2012
–
110
82
(1)
7
4
202
2,241
2,443
These impairments are considered to be special items for the purposes of determining the Group’s key financial indicator of EBITDA (excluding special items) and Underlying
Profit (see note 6).
(a) Kazakhmys Mining – Zhezkazgan Region cash generating unit (‘CGU’) impairment review
In light of the decline in the price of commodities produced by the Group and inflationary pressures on operating costs, the Group
commenced an optimisation programme and asset review which has resulted in operating cost and capital expenditure savings.
The asset review has considered the results of the optimisation programme to date, and the potential for future savings, when assessing
the future economic outlook for assets. The prospects for the Zhezkazgan Region, a CGU within Kazakhmys Mining, are considered
challenging. The recoverable amount of the Zhezkazgan Region CGU is believed by management to be significantly lower than its carrying
value such that an impairment charge of $575 million has been recognised, including $98 million of deferred taxes written off. The
impairment charge has reduced the carrying value of the Zhezkazgan CGU to nil.
The recoverable amount of the Zhezkazgan Region has been determined based on the ‘fair value less costs to sell’ calculations using the
cash flows expected to be generated from existing operations and certain development projects, in particular Zhomart II. Cash flows are
projected for periods up to the date that mining, refining and power generation is expected to cease based on management’s current
expectations. For current operations, the completion dates are based on recent assessments of the reserves and resources available
and annual ore extraction rates.
The key assumptions used in the recoverable amount calculations are:
•
•
•
•
•
•
Recoverable amount of reserves and resources – Economically recoverable reserves and resources are based on management’s
expectations and the technical studies and exploration and evaluation work undertaken by in-house and third party specialists.
Commodity prices – Long-term commodity prices assumed fall within the range of external market analyst consensus.
Operating costs – Variable operating costs have been included in the impairment test as a function of the related production
volumes. Fixed costs at the mines, concentrators and smelters are largely constant but reflect material changes in activity levels.
Discount rate – A discount rate of 16% was used in the recoverable amount calculations, which represents the pre-tax rate that
reflects the Group’s current market assessments of the time value of money and the risks specific to the cash generating unit.
Timing of capital expenditure – Management have estimated the timing of capital expenditure on the development projects based
on the Group’s current and future financing plans and the results of technical studies completed to date.
Inflation and exchange rates – These are based on a combination of externally sourced forecasts and rates determined from
information available in the market after considering long-term market expectations.
The calculation of the fair value less costs to sell of the Group’s CGUs for the impairment review at 31 December 2013 provided a
range of outcomes as the calculation is particularly sensitive to changes in commodity prices, operating cost inflation, capital expenditure
and the discount rate used. Any changes to the assumptions adopted in the calculation of the fair value less costs to sell, individually or
in aggregate, would result in a different valuation being determined.
(b) Kazakhmys Mining – impairment charges against property, plant and equipment
The impairment charges recognised against property, plant and equipment include $325 million related to the impairment of the
Zhezkazgan Region CGU, the impairment of certain production assets during the year, principally the Zhezkazgan smelter, Satpayev
concentrator and associated assets of $115 million and a number of mid-sized projects that were suspended during the year as a result
of the Group’s asset review of $33 million. In addition, following the suspension of the Berezovsky concentrator in the East Region in
the second half of the year, an impairment charge of $8 million has been recognised.
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(c) Kazakhmys Mining – impairment charges against mining assets
Following the Group’s asset review discussed above, the Zhezkazgan Region CGU was impaired resulting in charges of $139 million
being recognised against mining assets. In addition, certain mid-sized projects within Kazakhmys Mining have been suspended leading
to impairments of $5 million being recognised against mining assets.
(d) Kazakhmys Mining – inventories
Included within the provisions against inventories is an impairment charge of $4 million relating to specialised consumable inventories at
the suspended Zhezkazgan smelter and $7 million (2012: release of $1 million) relating to general slow moving and obsolete inventory.
Only impairment charges or reversals recognised against ore, specific consumables and finished goods inventories are treated as special
items (see note 6).
(e) Kazakhmys Mining – other assets
The impairment of other assets mainly relates to the allocation of the impairment charge recognised in respect of the Zhezkazgan Region
CGU, as discussed in note 8(a), in accordance with IAS 36 on a proportionate basis. This impairment charge is in addition to $20 million
of other asset impairments recognised at 30 June 2013.
(f) Kazakhmys Mining – trade and other receivables
Provisions against trade and other receivables include an amount of $12 million (2012: $4 million) within Kazakhmys Mining in respect
of trust activities. Under the terms of its subsoil licences, Kazakhmys LLC is required to provide certain social services to the communities
in which its mining activities operate. These trust activities are provided by municipal authority companies under trust management
agreements. For most receivable balances due from municipal authorities full provision is recognised in light of their past payment histories.
(g) Kazakhmys Mining – impairment charges against property, plant and equipment and mining assets
During 2012, the Bozymchak gold/copper development project, included in the Kazakhmys Mining Division, was subject to an impairment
review due to difficulties experienced in operating in Kyrgyzstan. The impairment review assumed a revised date for commercial
production, additional capital costs and re-assessed the risks associated with the project’s execution. As a result, the Group recognised
an impairment charge of $162 million against the mining assets and property, plant and equipment of the Bozymchak project. The
impairment charge reduced the carrying value of the Bozymchak project to its recoverable amount of $106 million, determined as its
value-in-use on a discounted cash flow basis. The charge of $162 million was recorded against tangible assets (mining assets – $71 million
and property, plant and equipment – $91 million) with an associated deferred tax credit of $13 million. The cash flow forecasts were
discounted at a pre-tax rate of 16%.
The impairment charge against property, plant and equipment also includes $11 million relating to transportation infrastructure owned
by the Group following a change in the intended use of the assets and a reassessment of their future cash flows.
In addition, during 2012 mining assets of $11 million were impaired which relate to the Kazakhmys Mining segment. Of this total,
$7 million relates to the write-down of the assets attributable to the Nikolayevsky mine which was suspended in August 2012
as it was no longer considered economically viable to operate this mine.
(h) Discontinued operations
Within discontinued operations impairment charges were recognised to write down the carrying values of MKM and ENRC to their
fair value less costs to sell. MKM was impaired by $22 million (2012: $17 million) and ENRC by $823 million (2012: $ 2,223 million
written down to value-in-use) (see note 22). Of the total impairment charges recognised at MKM in the years ended 31 December 2013
(for the period until 28 May 2013 when it was disposed of) and 31 December 2012 of $23 million (2012: $17 million), $1 million in both
years relates to the impairment of receivables which are not treated as special items.
9. Disposal of subsidiaries and investment in associate
(a) MKM
On 28 May 2013, the Group completed the disposal of MKM for a total consideration of €42 million ($55 million) net of expected
selling costs of €2 million ($2 million). At the date of disposal MKM had net assets of €41 million ($54 million). The total consideration
of €42 million consists of €30 million ($39 million) which was received in May 2013 and €12 million ($16 million) which is deferred.
The total consideration was concluded after the receipt of a dividend from MKM of €10 million ($13 million) in April 2013. The
deferred component of the consideration is in the form of a secured vendor loan note that bears interest at 9% per annum over
four years, expiring in 2017, with early repayment permitted. The loss on disposal of $1 million was mainly attributable to the recycling
of the foreign currency translation reserve of $2 million.
MKM was classified as an asset held for sale and a discontinued operation for the years ended 31 December 2013 (until its disposal in
May 2013) and 31 December 2012.
(b) Investment in Associate – ENRC
On 24 June 2013 Eurasian Resources, acting on behalf of the ENRC Consortium comprising Mr Machkevitch, Mr Ibragimov, Mr Chodiev
and the Government of Kazakhstan, announced a firm intention to make an offer for ENRC comprising $2.65 in cash plus approximately
0.23 Kazakhmys PLC shares per ENRC share. The share component of the offer was fixed at Kazakhmys’ share price on 21 June 2013,
resulting in an offer of approximately $1,206 million ($1,194 million net of expenses). On 8 November 2013, the transaction completed
and the Group received total proceeds of $1,194 million, comprising $875 million in cash and 77,041,147 Kazakhmys PLC shares valued
at $319 million. On completion the Group recognised a loss on disposal of its investment in ENRC of $528 million, principally
representing the recycling of the Group’s share of ENRC’s transactions recognised directly in equity of $511 million.
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125
4
9. Disposal of subsidiaries and investment in associate continued
The Kazakhmys PLC shares received by the Group were subsequently cancelled.
ENRC was classified as a discontinued operation for the years ended 31 December 2013 (until its disposal in November 2013)
and 31 December 2012.
(c) Subsidiary company
In early 2012, the Group disposed of a subsidiary company in Kazakhstan, included within Kazakhmys Mining, with net assets of $11 million,
for proceeds of $3 million which resulted in the recognition of a loss of $8 million on disposal.
10. Discontinued operations and assets held for sale
(a) ENRC
As stated in note 9(b), the Group disposed of ENRC on 8 November 2013. It was classified as a discontinued operation for the years
ended 31 December 2013 (until the date of its disposal) and 31 December 2012.
(b) MKM
As stated in note 9(a), the Group disposed of MKM on 28 May 2013. It was classified as a discontinued operation for the years ended
31 December 2013 (until the date of its disposal) and 31 December 2012.
(c) Ekibastuz GRES-1
On 5 December 2013, the Kazakhmys Board of Directors accepted an offer from Samruk-Energo, an investment vehicle of the
Government of Kazakhstan, for the sale of the Group’s 50% joint venture in Ekibastuz GRES-1 and the Group’s investment in Kaz
Hydro for $1,249 million, after transaction costs of $2 million and an additional $49 million being the cost of acquiring the remaining
shares held in Kaz Hydro. The offer was approved by Kazakhmys shareholders on 7 January 2014 with completion dependent on
certain conditions precedent. After considering the status of the sales process, the Directors believe that it is highly probable a sale will
be complete within 12 months. As a result, the Group’s investments in Ekibastuz GRES-1 and Kaz Hydro have been classified as assets
held for sale at 31 December 2013, with Ekibastuz GRES-1 being classified as a discontinued operation in the consolidated income
statement for the period ended 5 December 2013 and for the year ended 31 December 2012. The investment has been stated
at its last equity accounted carrying value, which is lower than the expected net sales proceeds (see note 21).
(d) Financial performance of discontinued operations
The summary of results from discontinued operations as presented in the consolidated income statement is shown below:
$ million
Results of discontinued operations:
MKM
Ekibastuz GRES-1
ENRC
Kazakhmys Petroleum
2013
(27)
89
(1,286)
–
(1,224)
2012
33
126
(2,481)
(13)
(2,335)
The balance sheet as at 31 December 2012 and the results from MKM are set out in note 5(a).
The Group’s share of ENRC’s results is shown below:
$ million
Share of associate’s revenue and profit
Revenue
Operating profit
Loss arising from acquisition of joint venture
Profit/(loss) before finance items, taxation and share of losses from joint ventures and associates
Net finance costs and share of loss of joint ventures and associates
Income tax expense and non-controlling interests
Share of profits/(losses)
Impairment loss recognised on the remeasurement to fair value less costs to sell/value-in-use
Loss on disposal
Results for the year
2013
834
126
(5)
121
(33)
(23)
65
(823)
(528)
(1,286)
2012
1,643
(146)
23
(123)
(69)
(66)
(258)
(2,223)
–
(2,481)
The Group’s share of Ekibastuz GRES-1’s results is shown below:
$ million
2013
2012
Share of joint venture’s revenue and profit
Revenue
Operating profit
Net finance (expense)/income
Income tax expense
Profit for the year
248
115
(3)
(23)
89
290
155
3
(32)
126
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Net cash flows from discontinued operations included within the consolidated cash flow statement are shown below:
$ million
2013
2012
Operating activities
Investing activities
Financing activities
Net cash (outflow)/inflow
(27)
(21)
43
(5)
192
(51)
(82)
59
2013
2012
784
58
177
1,019
25
1,044
659
58
192
909
57
966
11. Employee information
$ million
Wages and salaries
Social security costs
Employee benefits – note 31
Other non-monetary employee benefits (including sanatorium visits, medical services and treatment expenses) are also provided
by Kazakhmys LLC, and are included in the income statement in the expense line relating to the nature of the cost.
The average weekly number of employees during the year was as follows:
Kazakhmys Mining
Kazakhmys Power2
Corporate Services
MKM1
2013
2012
53,432
2,502
362
56,296
1,095
57,391
56,324
2,596
384
59,304
1,095
60,399
1
The employees of MKM are included for the prior year and the period ended 28 May 2013 (see note 10(b)).
2
Kazakhmys Power comprises the employees of the Group’s captive power stations only. Ekibastuz GRES-1 is treated as an equity accounted joint venture within discontinued
operations so its employees are not included in the analysis above.
Analysed as:
Central Asia1
UK
Netherlands
China
Germany
1
2013
2012
56,236
45
2
13
56,296
1,095
57,391
59,242
51
2
9
59,304
1,095
60,399
Includes Kazakhstan and Kyrgyzstan.
12. Key management personnel
Compensation for key management personnel (including Directors) comprises the following:
$ million
2013
2012
Salaries
Annual bonuses
Share awards1
Benefits
8.2
2.9
3.4
0.5
15.0
9.6
4.0
3.9
0.9
18.4
1
In accordance with IAS 24 ‘Related party disclosures’, key management personnel are those persons having authority and responsibility
for planning, directing and controlling the activities of the Group, directly or indirectly. Key management personnel of the Group during
the years ended 31 December 2013 and 2012 are deemed to be the Directors of the Company and the Chief Financial Officer, the
Chief Operating Officer, Head of Projects, and the Director of Strategy.
Share awards are long term in nature which will be awarded after a three year vesting period.
The aggregate amount paid to Directors was £5.9 million (2012: £6.1 million). Details are included in the Directors’ Remuneration
Report and form part of these consolidated financial statements.
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127
13. Auditor’s remuneration
The auditor’s remuneration for services provided to the Group during the year ended 31 December 2013 was $2.8 million
(2012: $2.3 million), comprised as follows:
$ million
Audit and other services:
Amounts receivable by the Company’s auditor and its associates for the audit of these financial statements
Amounts receivable by the Company’s auditor and its associates in respect of:
- the audit of financial statements of subsidiaries of the Company
- audit-related assurance services
- regulatory reporting services pursuant to legislation as reporting accountants
Total remuneration
2013
2012
0.8
0.8
1.1
0.3
0.6
2.8
1.2
0.3
–
2.3
Auditor remuneration for the audit of the financial statements of MKM for the year ended 31 December 2012 and the review of the
financial information for the six months ended 30 June 2012 of $0.2 million was payable to MKM’s statutory auditors, Ernst & Young
GmbH in Germany. These amounts are not included in the table above.
14. Finance income and finance costs
$ million
Finance income
Interest income
Foreign exchange gains
Finance income attributable to continuing operations
Interest income
Foreign exchange gains
Finance income attributable to discontinued operations
Finance costs
Interest expense
Total interest expense
Less: amounts capitalised to the cost of qualifying assets1
Interest on employee obligations
Unwinding of discount on provisions
Finance costs before foreign exchange losses
Foreign exchange losses
Finance costs attributable to continuing operations
Interest expense
Foreign exchange losses
Finance costs attributable to discontinued operations
1
2013
2012
12
33
45
–
5
5
50
17
47
64
–
10
10
74
(51)
(177)
126
(26)
(8)
(85)
(39)
(124)
(2)
(4)
(6)
(130)
(79)
(118)
39
(15)
(8)
(102)
(53)
(155)
(5)
(10)
(15)
(170)
In 2013, the Group capitalised to the cost of qualifying assets $126 million (2012: $39 million) of borrowing costs incurred on the outstanding debt during
the period on the CDB/Samruk-Kazyna and CDB financing facilities at an average rate of interest of 5.80% (2012: 5.54%).
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15. Income taxes
(a) Income statement
Major components of income tax expense for the years presented are:
$ million
Current income tax
Corporate income tax – current period (UK)
Corporate income tax – current period (overseas)
Corporate income tax – prior periods
Excess profits tax – prior periods
Deferred income tax
Corporate income tax – current period temporary differences
Corporate income tax – prior period temporary differences
Income tax expense attributable to continuing operations
Current income tax attributable to discontinued operations
Deferred income tax attributable to discontinued operations
Income tax expense/(credit) attributable to discontinued operations
Total income tax expense
2013
2012
–
62
(18)
–
7
148
23
(60)
76
7
127
1
–
1
128
(32)
–
86
(7)
–
(7)
79
A reconciliation of the income tax expense applicable to the accounting (loss)/profit before tax at the statutory income tax rate to the
income tax expense at the Group’s effective income tax rate is as follows:
$ million
(Loss)/profit before tax from continuing operations
At UK statutory income tax rate of 23.25% (2012: 24.5%)1
(Over)/underprovided in prior periods – current income tax
Underprovided in prior periods – deferred income tax
Impairment of deferred tax assets in respect of the Zhezkazgan Region
Effect of domestic tax rates applicable to individual Group entities
Non-deductible items:
Transfer pricing
Impairment charge recognised against the Zhezkazgan Region
Other non-deductible expenses
Refund of past excess profits tax payments
Income tax expense attributable to continuing operations
Income tax attributable to discontinued operations
Total income tax expense
1
2013
2012
(681)
(158)
(18)
7
27
98
21
151
37
23
–
16
–
11
5
95
50
–
127
1
128
6
–
53
(60)
86
(7)
79
For 2013, the UK statutory rate for January to March 2013 was 24.0% and for April to December 2013 was 23.0%, giving a weighted average full year rate of 23.25%.
For 2012, the UK statutory income tax rate for January to March 2012 was 26.0% and for April to December 2012 was 24.0%, giving a weighted average full year rate
of 24.5%.
Corporate income tax (‘CIT’) is calculated at 23.25% (2012: 24.5%) of the assessable profit for the year for the Company and its UK
subsidiaries, 20.0% for the operating subsidiaries in Kazakhstan (2012: 20.0%) and 10.0% for the Group’s Kyrgyzstan based subsidiary
(2012: 10%). MKM, which was included as part of discontinued operations, had a tax rate of 28.5% (2012: 28.5%) which relates
to German corporate income tax and trade tax.
The following factors impact the Group’s effective tax rate for the year ended 31 December 2013:
Effective tax rate
Tax charges are affected by the mix of profits and tax jurisdictions in which the Group operates. The lower CIT rate in Kazakhstan will
have the effect of lowering the Group’s overall future effective tax rate below the current UK statutory corporate tax rate. The impact
of transfer pricing provisions and non-deductible items, including impairment losses, will increase the Group’s overall future effective
tax rate.
The Group has incurred tax losses during the year, primarily related to certain subsoil use contracts, which are not expected
to generate sufficient taxable profits for these losses to be utilised in the foreseeable future. As a result, deferred tax assets
of $27 million (2012: $16 million) in respect of these losses have not been recognised.
4
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129
15. Income taxes continued
Impairment of deferred tax assets in respect of the Zhezkazgan Region
The $98 million deferred tax asset in the Zhezkazgan Region primarily related to the employee benefits obligation. Following the
impairment review performed on the Zhezkazgan Region, it is not expected that sufficient taxable income will be generated to utilise
these assets. As a result, the deferred tax assets have been fully impaired.
Transfer pricing
Notwithstanding recent changes to Kazakhstan’s transfer pricing legislation to closer align it with international trading practices,
inconsistencies still arise between the transfer pricing requirements in Kazakhstan and the UK. Consequently, certain of the Group’s
profits are taxed in both jurisdictions due to intercompany sales and purchase contracts that have been put in place within the Group
which places upward pressure of $2 million (2012: $3 million) on the Group’s effective tax rate. In addition, following confirmation from
the tax authorities on the appropriateness of the Group’s transfer pricing calculations on certain by-products, the previous provision
of $18 million has been reversed. This amount is shown as an overprovision in prior periods.
In addition, certain sales contracts entered into by Kazakhmys LLC with European and Russian customers included trading terms that
are not fully acceptable under Kazakhstan transfer pricing legislation. Consequently, a provision of $3 million has been recognised
based on this anticipated exposure at 31 December 2013 (2012: $3 million).
Other non-deductible expenses
Included within non-deductible expenses are impairment charges and provisions recognised against various assets and other ongoing
business expenses within Kazakhmys Mining of $50 million (2012: $53 million). In addition, the impairment charges recognised against
the Zhezkazgan Region’s assets are not deductible and have a $95 million impact on the tax charge. The reversal of the provision for
environmental pollution charges (see note 32(c)) and the related fines and penalties amounting to $38 million in aggregate was nontaxable and offset non-deductible expenses for the year ended 31 December 2012.
The following additional factor impacted the Group’s effective tax rate for the year ended 31 December 2012 only:
Excess profits taxation
In 2012, following the Supreme Court’s ruling, Kazakhmys LLC lodged a claim with the Ministry of Finance to seek reimbursement
of past EPT payments amounting to $108 million for the periods up to and including 2008. In the second half of 2012, the Ministry
of Finance refunded $60 million which was set-off against the income tax and mineral extraction tax liabilities for the year ended
31 December 2012. The remaining $48 million was challenged by the tax authorities who believe that this amount relates to periods
beyond the Kazakhstan statute of limitations (see note 37(b)). The reimbursement of $60 million in 2012 reduced the income tax
and mineral tax payments for the year and lowered the Group’s effective income tax rate.
(b) Recognised deferred tax assets and liabilities
The amounts of deferred taxation assets/(liabilities) provided in the consolidated financial statements are as follows:
$ million
Intangible assets
Mining assets
Provisions and employee benefits
Tax losses
Share-based payment schemes
Deferred tax asset, net
Analysed as:
Deferred tax asset
130
As at Charged to
1 January
income Charged to
2013 statement
equity
Net exchange
translation
As at
31 December
2013
(8)
(78)
10
11
82
60
6
3
86
1
11
4
4
(68)
(34)
(1)
–
(83)
–
–
–
–
5
–
–
–
5
–
1
–
–
(1)
(1)
–
–
(1)
(7)
(66)
14
15
18
25
5
3
7
87
(1)
(70)
(13)
5
–
(1)
–
21
(14)
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As at
1 January
2012
$ million
Intangible assets
Mining assets
Provisions and employee benefits
Tax losses
Share-based payment schemes
Deferred tax asset/(liability), net
Analysed as:
Deferred tax asset
Continuing
operations
Disposal of
subsidiary
As at
31 December
2012
(7)
(79)
6
12
47
56
20
–
55
(1)
–
4
(1)
36
5
(14)
3
32
–
1
–
–
(1)
(1)
–
–
(1)
(8)
(78)
10
11
82
60
6
3
86
61
(6)
27
5
(1)
–
87
(1)
(c) Unrecognised deferred tax assets
Deferred tax assets not recognised in the consolidated financial statements are as follows:
$ million
Temporary
difference
2013
Deferred
tax asset
Temporary
difference
2012
Deferred
tax asset
214
43
87
17
68
14
31
7
Continuing operations: Kazakhstan – tax losses
Losses carried forward
Continuing operations: UK – tax losses
Losses carried forward
Details of the Group’s tax losses arising in the jurisdictions in which it operates are as follows:
(i) Kazakhstan
At 31 December 2013 and at 31 December 2012, Kazakhmys LLC had corporate income tax losses on certain subsoil use contracts
that can be carried forward and used against future taxable profits arising from those subsoil use contracts. Under Kazakhstan tax
legislation, tax losses from loss making subsoil use contracts may not be offset against the taxable profits of profitable subsoil use
contracts. Kazakhmys LLC expects that certain subsoil use contracts will be in a tax loss making position for the foreseeable future
and will have no taxable profits against which the losses can be offset. Therefore, no deferred tax asset has been recognised in respect
of the tax losses associated with these subsoil use contracts. Tax losses arising from subsoil use contracts that are expected to be
profitable in the future have been recognised as deferred tax assets.
(ii) United Kingdom
Certain companies in the UK have tax losses that can be carried forward and used against future taxable profits in these companies.
There is no time restriction over the utilisation of tax losses. There is insufficient certainty that a taxable profit will arise in these
companies against which the losses can be offset. For these reasons, no deferred tax asset has been recognised.
(d) Unrecognised deferred tax liability
The gross temporary differences in respect of the undistributed reserves of the Group’s subsidiaries, as shown in their statutory accounts
prepared in accordance with applicable accounting standards, are as follows:
$ million
Undistributed reserves of subsidiaries
2013
2012
5,675
6,477
The Group has not recognised all of the deferred tax liability in respect of the distributable reserves of its subsidiaries because it controls
them and only part of the temporary differences are expected to reverse in the foreseeable future.
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131
16. Earnings per share
(a) Basic and diluted EPS
Basic EPS is calculated by dividing the (loss)/profit for the year attributable to owners of the Company by the weighted average number
of ordinary shares of 20 pence each outstanding during the year. Purchases of the Company’s shares by the Employee Benefit Trust
and by the Company under the share buy-back programme are held in treasury and treated as own shares.
The following reflects the income and share data used in the EPS computations:
$ million
Net (loss)/profit attributable to equity shareholders of the Company from continuing operations
Net loss attributable to equity shareholders of the Company from discontinued operations
Number
Weighted average number of ordinary shares of 20 pence each for EPS calculation
2013
(806)
(1,224)
(2,030)
2012
64
(2,335)
(2,271)
2013
2012
512,554,049
524,496,185
(1.57)
(2.39)
(3.96)
0.12
(4.45)
(4.33)
(b) EPS based on Underlying Profit
The Group’s Underlying Profit is the net profit for the year excluding special items and their resultant tax and non-controlling interest
effects, as shown in the table below. EPS based on Underlying Profit is calculated by dividing Underlying Profit by the weighted average
number of ordinary shares of 20 pence each outstanding during the year. The Directors believe EPS based on Underlying Profit provides
a more consistent measure for comparing the underlying trading performance of the Group.
The following table shows the reconciliation from the reported profit to Underlying Profit and the share data used to determine the
EPS based on Underlying Profit:
$ million
Net (loss)/profit attributable to equity shareholders of the Company from continuing operations
Special items within (loss)/profit before finance items and taxation – note 6:
Special items within (loss)/profit for the year – note 6:
Underlying Profit from continuing operations
Net loss attributable to equity shareholders of the Company from discontinued operations
Special items within (loss)/profit before finance items and taxation – note 6:
Special items within (loss)/profit before taxation – note 6:
Impairment charge recognised against the investment in ENRC
Associate
Special items within loss for the year – note 6:
Associate
Underlying Profit from discontinued operations
Total Underlying Profit
Number
Weighted average number of ordinary shares of 20 pence each for EPS based on
Underlying Profit calculation
EPS based on Underlying Profit – basic and diluted ($)
132
2013
(806)
768
58
20
(1,224)
2012
64
200
(73)
191
(2,335)
551
30
823
30
2,223
385
4
(14)
170
190
(2)
–
301
492
2013
2012
512,554,049
524,496,185
0.04
0.33
0.37
0.36
0.58
0.94
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17. Dividends paid
Dividends paid
The dividends paid during the year ended 31 December 2013 and 2012 are as follows:
Final dividend in respect of year ended 31 December 2012
Final dividend in respect of year ended 31 December 2011
Interim dividend in respect of year ended 31 December 2012
Per share
US cents
Amount
$ million
8.0
42
20.0
3.0
23.0
105
16
121
Other
Total
18. Intangible assets
$ million
Cost
At 1 January 2012
Additions
Disposals
At 31 December 2012
Additions
Disposals
Net exchange adjustment
At 31 December 2013
Amortisation
At 1 January 2012
Amortisation charge
Disposals
At 31 December 2012
Amortisation charge
Impairment
Disposals
At 31 December 2013
Net book value
At 31 December 2013
At 31 December 2012
Licences
35
5
–
40
3
(3)
(1)
39
34
13
(4)
43
14
(15)
(1)
41
69
18
(4)
83
17
(18)
(2)
80
7
2
–
9
1
3
–
13
9
5
(4)
10
5
14
(14)
15
16
7
(4)
19
6
17
(14)
28
26
31
26
33
52
64
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133
19. Property, plant and equipment
$ million
Cost
At 1 January 2012
Additions
Capitalised borrowing costs
Capitalised depreciation
Transfers
Disposals
At 31 December 2012
Additions
Transfers
Disposals
At 31 December 2013
Depreciation and impairment
At 1 January 2012
Depreciation charge
Disposals
Impairment – note 8(g)
At 31 December 2012
Depreciation charge
Disposals
Impairment – note 8(b)
At 31 December 2013
Net book value
At 31 December 2013
At 31 December 2012
134
Land and
buildings
Plant and
equipment
Other
Construction
in progress
Total
1,102
19
–
–
26
(20)
(15)
1,112
18
–
–
76
(34)
(19)
1,153
1,836
129
–
–
64
(26)
(28)
1,975
68
–
–
92
(18)
(32)
2,085
375
71
–
–
5
(52)
(6)
393
100
–
–
19
(40)
(8)
464
613
454
36
7
(95)
(3)
(12)
1,000
834
111
10
(187)
(40)
(28)
1,700
3,926
673
36
7
–
(101)
(61)
4,480
1,020
111
10
–
(132)
(87)
5,402
519
53
(12)
16
(8)
568
47
(8)
127
(10)
724
1,043
150
(19)
3
(15)
1,162
155
(19)
203
(17)
1,484
182
33
(20)
(1)
(3)
191
35
(23)
63
(4)
262
19
–
–
92
–
111
–
(19)
90
(4)
178
1,763
236
(51)
110
(26)
2,032
237
(69)
483
(35)
2,648
429
544
601
813
202
202
1,522
889
2,754
2,448
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20. Mining assets
$ million
Mine
Exploration development
costs
cost
Cost
At 1 January 2012
Additions
Transfers
Disposals
At 31 December 2012
Additions
Transfers
Disposals
At 31 December 2013
Depletion and impairment
At 1 January 2012
Depletion charge
Disposals
Impairment – note 8(g)
At 31 December 2012
Depletion charge
Disposals
Impairment – note 8(c)
At 31 December 2013
Net book value
At 31 December 2013
At 31 December 2012
Mine
stripping Construction
costs
in progress
Total
215
50
–
–
12
(1)
(3)
273
(26)
–
–
–
(2)
(7)
238
421
5
–
–
78
(6)
(8)
490
43
14
1
71
(8)
(11)
600
46
34
–
5
–
(20)
(1)
64
34
–
3
–
(24)
(1)
76
77
120
3
–
(90)
(1)
(1)
108
96
1
–
(71)
–
(3)
131
759
209
3
5
–
(28)
(13)
935
147
15
4
–
(34)
(22)
1,045
28
–
–
70
(1)
97
2
(2)
24
(3)
118
175
25
(6)
5
(2)
197
33
(3)
88
(5)
310
19
20
(19)
5
–
25
24
(24)
18
–
43
–
–
–
2
–
2
–
–
14
–
16
222
45
(25)
82
(3)
321
59
(29)
144
(8)
487
120
176
290
293
33
39
115
106
558
614
2013
2012
21. Investment in joint venture
$ million
927
89
(12)
–
(1,004)
–
1
Share of profits from joint venture is net of tax.
2
Based on the unaudited financial statements for the period ended 30 November 2013 and the year ended 31 December 2012 of Ekibastuz GRES-1.
838
126
(9)
(28)
–
927
The investment in joint venture relates to the Group’s 50% shareholding in Ekibastuz GRES-1. On 5 December 2013, the Kazakhmys
Board of Directors accepted an offer from Samruk-Energo, an investment vehicle of the Government of Kazakhstan, for the sale of
the Group’s 50% joint venture in Ekibastuz GRES-1 and the Group’s investment in Kaz Hydro for $1,249 million. The sale was approved
by the Group’s shareholders on 7 January 2014 with completion, which is expected in the first half of 2014, dependent upon certain
conditions precedent. After considering the status of the sales process, the Directors believe that it is highly probable a sale will be
completed within 12 months. As a result, the Group’s investments in Ekibastuz GRES-1 and Kaz Hydro have been classified as assets held
for sale at 31 December 2013, with Ekibastuz GRES-1 being classified as a discontinued operation in the consolidated income statement
for the period ended 5 December 2013 and for the year ended 31 December 2012.
At 1 January
Share of profits from joint venture1,2
Net share of losses of joint venture recognised in other comprehensive income2
Dividends received
Reclassified to assets held for sale – note 10(c)
At 31 December
4
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135
22. Investment in associate
The Group held 334,824,860 shares in ENRC representing 26.0% of the issued share capital until 8 November 2013, the date on which
the investment was sold.
$ million
Investment in associate
At 1 January
Share of profits/(losses) from associate1,2
Share of losses of associate recognised in other comprehensive income2
Impairment charge against investment in associate
Dividends received
Disposal – note 9(b)
At 31 December
1
Share of profits/(losses) from associate is net of tax.
2
Based on ENRC’s financial statements for the year ended 31 December 2012 and unaudited interim results for the period ended 30 June 2013.
2013
2,027
65
(75)
(823)
–
(1,194)
–
2012
4,600
(258)
(33)
(2,223)
(59)
–
2,027
On 24 June 2013, the Kazakhmys Board of Directors gave an irrevocable undertaking to accept the proposed offer from Eurasian
Resources for the Group’s entire shareholding in ENRC. At that date it was considered ‘highly probable’ that Kazakhmys’ shareholders
would approve the transaction such that the Group’s investment in ENRC met the criteria to be classified as an asset held for sale.
Kazakhmys shareholder approval was received on 2 August 2013. The investment was stated at the expected net sales proceeds
of $1,194 million, resulting in an impairment of $823 million being recognised within discontinued operations in the consolidated income
statement. The transaction completed on 8 November 2013 with the Group receiving $875 million (net of $12 million of estimated
transaction costs) and 77,041,147 Kazakhmys PLC shares valued at $319 million (£207 million). The Kazakhmys PLC shares received
as part of the consideration were subsequently cancelled. The Group recognised a loss on disposal of the ENRC investment within
discontinued operations (see note 9(b)), of $528 million, principally representing the recycling of the Group’s share of ENRC’s
transactions recognised directly in equity of $511 million.
At 31 December 2012, following an impairment charge of $2,223 million the carrying value of the Group’s equity investment in ENRC
was $2,027 million. The impairment charge was recognised on the basis of an impairment review that was performed in accordance
with IAS 36 ‘Impairment of assets’, where the value of the Group’s investment was determined on a value-in-use basis.
23. Other non-current assets
$ million
2013
2012
Advances paid for property, plant and equipment
Non-current VAT receivable
Other non-current investments1
Gross value of other non-current assets
Provision for impairment
535
113
28
676
(29)
647
456
69
25
550
(18)
532
1
Other non-current investments include long-term deposits placed in escrow accounts with financial institutions in Kazakhstan as required by the Group’s site restoration
obligations amounting to $9 million (2012: $9 million) and unlisted investments of $19 million (2012: $16 million), mainly related to a long-term receivable in respect of
the sale of MKM. As at 31 December 2012 of the $16 million, $14 million related to the Group’s investment in Kaz Hydro that was classified as an asset held for sale at
5 December 2013 (see note 21).
24. Inventories
$ million
2013
2012
Raw materials and consumables
Work in progress
Finished goods
Gross value of inventories
Inventories provision
344
259
100
703
(93)
610
399
278
159
836
(86)
750
The carrying amount of inventory that has been written down to net realisable value is $93 million (2012: $86 million).
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25. Prepayments and other current assets
$ million
2013
2012
Advances paid for goods and services
VAT receivable
Amounts due from related parties
Other
Gross value of prepayments and other current assets
Provision for impairment of prepayments and other current assets
100
207
13
35
355
(30)
325
151
185
13
58
407
(27)
380
Provision for impairment as at 31 December 2013 includes a provision against the balances due from related parties (included within
‘other companies’ – see note 38), amounting to $14 million (2012: $5 million).
26. Trade and other receivables
$ million
2013
2012
Trade receivables
Amounts due from related parties
Amounts due from third parties
Interest receivable
Gross value of trade and other receivables
Provision for impairment of receivables
284
41
243
3
287
(52)
235
175
58
117
3
178
(56)
122
Included within trade receivables is an amount of $1 million (2012: $3 million) in respect of provisionally priced metal sales which
are marked-to-market using forward prices in accordance with the Group’s revenue recognition accounting policy.
Provision for impairment as at 31 December 2013 includes a provision on receivables due from related parties (included within
‘companies under trust management’ – see note 38), amounting to $32 million (2012: $51 million).
27. Current investments
$ million
2013
2012
At 1 January
Additions
Disposals
Disposal of subsidiary – note 9(c)
At 31 December
515
197
(87)
–
625
810
51
(333)
(13)
515
Current investments consist of bank deposits with initial terms of maturities of between three and twelve months held with institutions
in the UK and Kazakhstan.
28. Cash and cash equivalents
$ million
Cash deposits with initial maturities of less than three months
Cash at bank
Continuing operations1
Cash and cash equivalents in the statement of cash flows
2012
1,107
139
1,246
4
1,250
Current investments and cash and cash equivalents include approximately $1,120 million (2012: $1,545 million) of cash drawn down under the CDB/Samruk-Kazyna financing
facilities which is reserved for specific development projects in accordance with the relevant facility agreements (see note 30) and approximately $8 million of cash drawn
down under the CDB Aktogay financing facility.
1
2013
1,125
590
1,715
–
1,715
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137
29. Share capital and reserves
(a) Allotted share capital
Allotted and called up share capital – Ordinary shares of 20 pence each
At 1 January 2012
Issuance of Company’s share capital pursuant to acquisition of non-controlling interest
in subsidiary
At 31 December 2012
Purchase of Company’s issued share capital
At 31 December 2013
Number
£ million
$ million
535,417,961
107
200
2,219
535,420,180
(77,041,147)
458,379,033
–
107
(15)
92
–
200
(29)
171
In November 2013, the Group completed the disposal of its investment in ENRC, receiving 77,041,147 Kazakhmys PLC shares as part
of the total consideration. These shares were subsequently cancelled.
During 2012, the Company issued 2,219 ordinary shares of 20 pence each and paid $2 million in consideration for the transfer of
7,160,730 units in Kazakhmys LLC from non-controlling shareholders. Following this transaction, the Company’s interest in Kazakhmys
LLC increased from 99.88% at 1 January 2012 to 99.90% at 31 December 2012.
(b) Own shares
(i) Own shares purchased under the Group’s share-based payment plans
The provision of shares to the Group’s share-based payment plans is facilitated by an Employee Benefit Trust. The cost of shares
purchased by the Trust is charged against retained earnings as treasury shares. The Employee Benefit Trust has waived the right
to receive dividends on these shares. During 2013, 115,579 shares (2012: 84,515) were transferred out of the Trust in settlement
of share awards granted to employees that were exercised during the period.
At 31 December 2013, the Group, through the Employee Benefit Trust, owned 648,215 shares in the Company (2012: 763,794)
with a market value of $2 million and a cost of $12 million (2012: $10 million and $14 million respectively). The shares held in treasury
represented 0.14% (2012: 0.14%) of the issued share capital at 31 December 2013.
(ii) Own shares purchased under the Company’s share buy-back programme
In August 2011, the Group announced a share buy-back programme of up to $250 million, the completion of which was subject to
market conditions. The buy-back programme commenced in September 2011 following receipt of regulatory and shareholder approval.
In the period from 1 January 2012 to 10 May 2012, when the buy-back programme ceased, the Group purchased 6,142,120 shares
at a cost of $88 million. In total, since the buy-back commenced, the Group purchased 11,701,830 shares at a cost of $166 million
(equivalent to 2.2% of the issued share capital prior to the commencement of the buy-back programme). The bought back shares
are held in treasury and have been accounted for as own shares. The cost of the shares has been charged against retained earnings
and no dividends are declared on these shares.
(c) Capital reserves
$ million
At 1 January 2012
Exchange differences on retranslation of foreign operations1
Share of losses of joint venture recognised in other
comprehensive income
Share of gains/(losses) of associate recognised in other
At 31 December 2012
Exchange differences on retranslation of foreign operations1
Recycling of exchange differences on disposal of subsidiaries
Recycling of capital reserves on disposal of associate
Share of losses of joint venture recognised in other
Share of gains of associate recognised in other
At 31 December 2013
1
Reserve fund
Net
unrealised
gains/(losses)
reserve
Currency
translation
reserve
Capital
redemption
reserve
Hedging
reserve
Total
42
–
(43)
–
(843)
(50)
6
–
(2)
–
(840)
(50)
–
–
(9)
–
–
(9)
–
42
–
–
–
43
–
–
–
–
(76)
(978)
(60)
2
509
–
6
–
–
–
–
(2)
–
–
2
(33)
(932)
(60)
2
511
–
–
(12)
–
–
(12)
–
–
42
–
–
–
(75)
–
(614)
–
25
31
–
–
–
(75)
25
(541)
Of the $60 million (2012: $50 million) of foreign exchange differences recognised in the currency translation reserve for the year, $1 million (2012: a credit of $2 million)
relates to discontinued operations.
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(i) Reserve fund
In accordance with legislation of the Republic of Kazakhstan the reserve fund comprises prescribed transfers from retained earnings
amounting to 15% of Kazakhmys LLC’s charter capital.
(ii) Net unrealised gains/(losses) reserve
The net unrealised gains/(losses) reserve was used to record the fair value movements of available for sale investments within the
Group’s associate, ENRC.
(iii) Currency translation reserve
The foreign currency translation reserve is used to record exchange differences arising from the translation of the financial statements
of subsidiaries whose functional currency is not the US dollar into the Group’s presentation currency.
(iv) Capital redemption reserve
As a result of the share buy-back programme undertaken in 2008 and the repurchase of Kazakhmys PLC shares received from the
ENRC disposal in 2013, transfers were made from share capital to the capital redemption reserve based on the nominal value
of the shares cancelled.
(v) Hedging reserve
The hedging reserve is used to record the fair value movements of derivative financial instruments that have been designated as cash
flow hedges within the Group’s associate, ENRC.
30. Borrowings
Maturity
31 December 2013
CDB/Samruk-Kazyna facility – US$ LIBOR + 4.80%
CDB – Aktogay facility – US$ LIBOR + 4.20%
Pre-export finance facility – US$ LIBOR + 2.80%
31 December 2012
CDB/Samruk-Kazyna facility – US$ LIBOR + 4.80%
Revolving trade finance facility – EURIBOR + 2.25%
Average
interest
rate during Currency of
the year denomination
Current
$ million
Non-current
$ million
Total
$ million
2025
2026
2017
5.26%
6.55%
2.98%
US dollar
RMB
US dollar
503
–
–
503
2,065
57
486
2,608
2,568
57
486
3,111
2025
5.54%
US dollar
29
2,439
2,468
2015
2.60%
Euro
–
125
125
Pre-export finance facility
On 20 December 2012, Kazakhmys Finance PLC, a wholly owned subsidiary of the Company, signed a five year pre-export finance
facility for $1.0 billion with a syndicate of banks to be used for general corporate purposes. The funds attract interest at US$ LIBOR plus
2.80%. The facility has a final maturity date of December 2017 and monthly loan repayments of principal will commence in January 2015.
Kazakhmys PLC, Kazakhmys LLC and Kazakhmys Sales Limited act as guarantors of the loan.
On 27 December 2013, the facility was reduced to $500 million, being the amount drawn at the end of the availability period.
Arrangement fees with an amortised cost of $14 million, gross cost before amortisation of $18 million, have been netted off against
these borrowings in accordance with IAS 39. At 31 December 2012, the facility was undrawn.
China Development Bank (‘CDB’) and JSC Sovereign Wealth Fund Samruk-Kazyna (‘Samruk-Kazyna’) financing line
On 30 December 2009, Kazakhmys announced that it had secured a $2.7 billion financing line with CDB and Samruk-Kazyna, allocated
from a $3.0 billion financing line agreed between CDB and Samruk-Kazyna. Of the $2.7 billion secured for the Group, facility agreements
were signed for $2.1 billion on 30 December 2009, and for a further $200 million on 12 January 2010, for the development of the
Group’s projects at Bozshakol and Bozymchak and other development projects, and two facility agreements for $200 million each,
allocated to the Akbastau-Kosmurun and Zhomart projects, were signed on 11 June 2012. Samruk-Kazyna has separately signed an
agreement for $300 million of the $3.0 billion to be used elsewhere and not for the benefit of the Group, which was subsequently repaid
to CDB by Samruk-Kazyna in January 2013. As part of this financing package, the Company, along with a subsidiary of Samruk-Kazyna,
provided a guarantee in favour of CDB in respect of Samruk-Kazyna’s obligations under the $2.7 billion financing line.
The funds, which were fully drawn in January 2013, attract interest semi-annually at an annualised rate of US$ LIBOR plus 4.80%.
The loans have a final maturity falling between January 2022 and August 2025 and the first repayment commenced in January 2013.
As at 31 December 2013, $2.6 billion (2012: $2.5 billion) was drawn under the facility agreements. Arrangement fees with an amortised
cost as at 31 December 2013 of $25 million (2012: $32 million), (gross cost before amortisation of $43 million (2012: $40 million)), have
been netted off against these borrowings in accordance with IAS 39. In January 2014, the Group repaid early $400 million under this
facility related to the Akbastau-Kosmurun and Zhomart projects, as development of these projects is not expected to commence in the
near future.
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139
4
30. Borrowings continued
China Development Bank (‘CDB’) Aktogay finance facility
On 16 December 2011, the Group signed a $1.5 billion loan facility with the CDB, to be used for the development of the major
copper project at Aktogay. The loan facility consists of two separate agreements with similar terms and conditions. The first agreement
is for up to $1.3 billion and the second agreement for up to RMB1.0 billion ($165 million equivalent at the RMB/US$ exchange rate on
31 December 2013). The US dollar agreement attracts interest at US$ LIBOR plus 4.20% and the RMB agreement attracts interest at
the applicable benchmark lending rate published by the People’s Bank of China. The funds are available to draw down over a three year
period commencing from 31 December 2012 and mature 15 years from the date of the first draw down. At 31 December 2012, the
finance facility remained undrawn. Kazakhmys PLC acts as guarantor of the loan.
During 2013, the Group had drawn down CNY 350 million ($57 million) under the RMB facility. Arrangement fees with an amortised
cost of $0.6 million, gross cost before amortisation of $0.8 million, have been netted off against these borrowings in accordance with IAS
39. In order to protect the Group from currency risks arising on this CNY denominated debt, the Group has entered into a CNY/US$
cross currency swap during the year. This derivative instrument provides a hedge against any movement in the CNY exchange rate
against the US dollar and also swaps the interest basis from a CNY interest rate into a US$ LIBOR interest basis. The fair value of the
swap at 31 December 2013 is not material.
Undrawn project and general and corporate purpose facilities
$ million
Pre-export finance facility (within Kazakhmys Finance)
CDB Aktogay finance facility (within Kazakhmys Finance)
CDB/Samruk-Kazyna project specific finance facility (within Kazakhmys Finance)
Revolving credit facilities (within Kazakhmys Finance)
Letter of credit and bank guarantee facilities (within Kazakhmys LLC)
2013
2012
–
1,443
–
100
82
1,625
1,000
1,500
200
300
85
3,085
31. Employee benefits
Kazakhmys LLC provides post-retirement benefits and other long-term benefits in Kazakhstan which are unfunded. The largest portion
of the employee benefits provision is other long-term benefits, of which the most significant is for the long-term disability allowances.
The other benefits provided include one-time retirement grants, financial aid, dental care, medical benefits, sanatorium visits, annual
financial support to pensioners and funeral aid.
The amounts recognised in the income statements are as follows:
$ million
2013
2012
Employer’s share of current service cost
Employer’s share of past service cost
Actuarial losses recognised in period
Interest cost on benefits obligation
19
84
74
26
203
2
–
190
15
207
In accordance with Kazakhstan law, the Group obtained insurance cover for the disability payments to employees from February 2005.
These disability payments that were covered by insurance contracts were accounted for under IAS 19 ‘Employee benefits’ as an insured
benefit, with no asset or liability being recognised on the Group’s balance sheet. During 2013, as a result of financial difficulties, the
insurance companies ceased making their obligated payments to the employees covered by insurance contracts. The Group has agreed
to meet these future disability payments. Consequently at 31 December 2013, the liability for the future disability benefit payments to
the employees previously covered by the insurance contracts has been included in the disability benefits obligation. Of the total income
statement charge of $203 million for the year, $84 million relates to the assumption of this obligation by the Group and has been treated
as a one-off special item. Also included in the income statement charge are the current service cost of $19 million and actuarial losses
recognised in the period of $74 million arising from an increase in the number of new claimants and changes in the actuarial assumptions.
The expense is recognised in the following line items of the income statements:
$ million
2013
2012
Administrative expenses
Finance costs
177
26
203
192
15
207
140
xx Lorem ipsum
xx Lorem ipsum
xx Lorem ipsum
xx Lorem ipsum
The movement in the defined employee benefits obligation is as follows:
$ million
2013
2012
At 1 January
Employer’s share of current service cost
Employer’s share of past service cost
Net actuarial losses arising in the income statement
Net actuarial losses recognised in other comprehensive income
Interest cost on benefit obligation
Benefits paid
Defined benefit obligation at 31 December
373
19
84
74
27
26
(52)
(8)
543
212
2
–
190
–
15
(41)
(5)
373
$ million
2013
2012
At 1 January
Interest income
Contributions by employer
Benefits paid
Fair value of plan assets at 31 December
–
1
64
(52)
13
–
–
41
(41)
–
The movement in the plan asset is as follows:
The employee benefits obligation of $530 million, consists of $60 million (2012: $36 million) related to post-employment benefits
and $470 million (2012: $337 million) related to other long-term benefits.
The net liability and expected settlement of the defined benefit obligation is as follows:
$ million
2013
2012
Defined benefit obligation
Less fair value of plan assets
Net liability recognised at 31 December
Current
Non-current
543
13
530
53
477
530
373
–
373
43
330
373
The principal actuarial assumptions used in determining the employee benefit obligation are as follows:
Discount rate at 31 December
Future salary increases
Medical and other related cost increases
2013
2012
8.2%
3.4%
5.0%
7.2%
3.2%
5.0%
In addition, mortality rates were determined with reference to the 2011 mortality table of Kazakhstan as published by the Government.
Historical information is as follows:
$ million
Defined benefit obligation
Plan assets
Deficit
Experience adjustments on plan liabilities
2013
2012
2011
543
13
(530)
91
373
–
(373)
190
211
–
(211)
6
2010
2009
58
–
(58)
–
50
–
(50)
–
The Group continues to pay the non-monetary benefits described in note 11.
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141
32. Provisions
$ million
At 1 January 2012
Arising/(reversing) during the year
Utilised
Unwinding of discount
Disposal of subsidiary
At 31 December 2012
Arising/(reversing) during the year
Utilised
Unwinding of discount
At 31 December 2013
Current
Non-current
At 31 December 2013
Current
Non-current
At 31 December 2012
Site
restoration Payments for
and clean up
licences
54
9
(1)
4
(1)
65
1
(1)
4
(2)
67
–
67
67
–
65
65
37
5
(5)
4
(1)
40
(1)
(6)
4
(1)
36
5
31
36
5
35
40
Other
38
(38)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Total
129
(24)
(6)
8
(2)
105
–
(7)
8
(3)
103
5
98
103
5
100
105
(a) Site restoration and clean up
The costs of decommissioning and reclamation of mines within the Group are based on the amounts included in the Group’s contracts
for subsoil use. The provision represents the discounted values of the estimated costs to decommission and reclaim the mines at
the dates of depletion of each of the deposits. The present value of the provision has been calculated using a discount rate of 8.2%
(2012: 7.2%) per year. The liability becomes payable at the end of the useful life of each mine which ranges from one to 49 years.
Uncertainties in estimating these costs include potential changes in regulatory requirements, decommissioning and reclamation
alternatives, and the levels of discount and inflation rates.
(b) Payments for licences for mining assets
In accordance with its contracts for subsoil use, the Group is liable to repay the costs of geological information provided by the
Government of Kazakhstan for licensed deposits. The total amount payable by the Group is discounted to its present value using a
discount rate of 8.2% (2012: 7.2%). The uncertainties include estimating the amount of the payments and their timing. The amounts
are payable prior to 2019.
(c) Other
Other provisions are recorded where the Group has a legal or constructive obligation and a future outflow of resources is considered
probable. Other provisions at 1 January 2012 of $38 million related to a potential exposure to environmental pollution charges (‘EPC’)
which arose from the tax audit conducted at Kazakhmys LLC for the years 2006 to 2008 inclusive. In May 2012 the Supreme Court ruled
in favour of Kazakhmys LLC in its appeal over certain of the claims levied by the tax authorities. Consequently, the Directors believed
that the likelihood of further liabilities or exposures existing in respect of EPC for the periods 2006 to 2008 was remote and the
provision of $38 million was released in the year ended 31 December 2012.
33. Trade and other payables
$ million
2013
2012
Payables under social obligations
Trade payables
Salaries and related payables
Other taxes payable
Interest payable
Mineral extraction tax payable
Amounts payable to related parties
Payments received in advance
Other payables and accrued expenses
146
192
92
48
64
54
6
7
22
631
168
116
90
56
55
71
1
32
33
622
142
xx Lorem ipsum
xx Lorem ipsum
xx Lorem ipsum
xx Lorem ipsum
34. Reconciliation of (loss)/profit before taxation to net cash inflow from operating activities
$ million
2013
(Loss)/profit before taxation from continuing operations
Loss before taxation from discontinued operations
Interest income
Interest expense
Share-based payments
Depreciation and depletion
Amortisation
Share of profits from joint venture
Share of (profits)/losses from associate
Impairment losses
Unrealised foreign exchange loss
Loss on disposal of associate
Operating cash flows before changes in working capital and provisions
Increase in non-current VAT receivable
Decrease/(increase) in inventories
Decrease/(increase) in prepayments and other current assets
(Increase)/decrease in trade and other receivables
Increase in employee benefits
Increase/(decrease) in provisions
Increase in trade and other payables
Cash flow from operations before interest, income taxes and dividends from associate and
joint venture
(681)
(1,223)
(12)
53
5
282
6
(89)
(65)
1,535
32
1
528
14
386
(44)
145
31
(185)
138
6
27
2012
151
(2,329)
(17)
84
6
269
7
(126)
258
2,443
6
8
–
2
762
(69)
(40)
(177)
52
168
(35)
171
504
832
Non-cash transactions
There were the following non-cash transactions:
•
•
•
as stated in note 5(a)(v) the Group capitalised depreciation of $14 million (2012: $12 million) for property, plant and equipment
and mining assets.
the Group released $1 million (2012: $5 million) relating to provisions for contractual reimbursements payable to the Government
for geological information and social commitments with a corresponding increase in intangible assets.
the reassessment of the site restoration and clean up provisions during the year has resulted in the capitalisation of $1 million
(2012: $9 million) to property, plant and equipment, with a corresponding increase in the site restoration and clean up provisions.
35. Movement in net debt
Current investments
Borrowings
Net debt
1,246
515
(2,468)
(707)
$ million
At
1 January
2012
Current investments
Borrowings
1,102
810
(1,893)
19
1
Cash flow
470
110
(683)
(103)
Cash flow
140
(282)
(569)
(711)
Attributable to
discontinued
operations
At
Other 31 December
1
movements
2013
4
–
56
60
(5)
–
(16)
(21)
Attributable to
discontinued
operations
Other
movements1
5
–
1
6
(1)
(13)
(7)
(21)
1,715
625
(3,111)
(771)
At
31 December
2012
1,246
515
(2,468)
(707)
$ million
At
1 January
2013
Other movements comprise net foreign exchange movements, non-cash amortisation of fees on borrowings and other non-cash reconciling items. For the year ended
31 December 2013, the $16 million other movement on borrowings consists of $14 million amortisation of fees on the Group’s financing facilities and $2 million foreign
exchange differences on the CDB Aktogay RMB facility. For the year ended 31 December 2012, the $13 million movement in current investments relates to the investments
disposed of when a Kazakhstan subsidiary company was sold in early 2012 (see note 9(c)).
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143
36. Financial risk management
The financial information disclosed in the tables relating to the year ended 31 December 2013 represents continuing operations only.
The main risks arising from the Group’s financial instruments are liquidity risk, credit risk, interest rate risk, foreign exchange risk and
commodity price risk. These risks arise from exposures that occur in the normal course of business and are managed by the Group’s
Treasury department in close cooperation with the Group’s business divisions under oversight of a Treasury Committee, which is chaired
by the Chief Financial Officer. The responsibilities of the Treasury Committee include the monitoring of financial risks, management of
the Group’s cash resources, debt funding programmes and capital structure, approval of treasury counterparties and relevant transaction
limits, and oversight of all significant treasury activities undertaken by the Group. The Treasury department operates as a service centre
to the business divisions of the Group and not as a profit centre.
A Group Treasury Policy has been approved by the Board and is periodically updated to reflect developments in the financial markets
and the financial exposures facing the Group. The Treasury Policy covers specific areas of financial risk management, in particular, liquidity
risk, credit risk, interest rate risk, foreign exchange risk and commodity price risk. The Group’s Treasury Committee and the Group’s
Internal Audit department monitor compliance with the Treasury Policy on a regular basis.
The Group’s Treasury department prepares monthly treasury reports for senior management which monitor all major financial
exposures and treasury activities undertaken by the Group. In addition, a treasury report is prepared for each Board meeting which
includes a summary of the credit markets and their impact on the implementation of the Group’s strategy, progress on the Group’s
financing initiatives and the significant financial exposures faced by the Group.
The Group’s principal financial instruments comprise borrowings, cash and cash equivalents, current investments and derivatives used
for risk management purposes. The Group’s borrowings, surplus liquidity and derivative financial instruments are controlled and managed
centrally by the Group’s Treasury department. Liquidity retained within Kazakhstan is only held for working capital purposes.
The Group’s accounting policies with regard to financial instruments are detailed in note 3.
(a) Derivatives, financial instruments and risk management
The Group periodically uses derivative financial instruments to manage certain exposures to fluctuations in commodity prices, interest
rates and exchange rates. The Group’s philosophy is generally not to hedge its core revenue streams. In periods of significant market
volatility or uncertainty, the Group may use derivative instruments as a means of reducing volatility and any negative impact on its
operating cash flows. Limits on the size and type of any derivative hedge transaction are laid down by the Board and subject to strict
internal controls.
(b) Categories of financial assets and financial liabilities
The carrying amounts of financial assets and liabilities by categories are as follows:
$ million
Loans and receivables1
Available for sale assets2
Financial liabilities measured at amortised cost3
Notes
23,26,27,28
23
30,32,33
2013
2,584
19
(3,669)
2012
1,892
16
(2,971)
1
Loans and receivables comprise long-term deposits within other non-current investments (see note 23), trade and other receivables, current investments and cash
and cash equivalents.
2
Available for sale assets comprise unlisted investments within other non-current investments (see note 23).
3
Financial liabilities measured at amortised cost comprise borrowings, provision for cash payments (payments for licences) and trade and other payables (excluding payments
received in advance, other taxes payable and mineral extraction tax payable that are not regarded as financial instruments).
(c) Foreign exchange risk
The Group has transactional currency exposures. Such exposures arise from sales or purchases by an operating company in currencies
other than that company’s functional currency. The functional currency of Kazakhmys Mining (production entities) and Kazakhmys Power
is the Kazakhstan tenge, with Kazakhmys Services Ltd having a UK sterling functional currency, the Bozymchak project in Kyrgyzstan having
a Kyrgyz som functional currency and the Company, the Group’s financing and holding companies and also the sales entity of Kazakhmys
Mining (Kazakhmys Sales Ltd) having a US dollar functional currency. The currencies giving rise to this foreign currency risk are primarily
the US dollar based revenues and certain costs, bank deposits and trade receivables of Kazakhmys LLC and certain intercompany funding
balances that exist within the Group.
Where possible, the Group attempts to conduct its business, maintains its monetary assets and seeks to source corporate debt capital
in US dollars so as to minimise its exposure to other currencies. The Group retains surplus cash balances in US dollars for capital
expenditure, acquisitions and returns to shareholders. Working capital balances are maintained in a mix of US dollars and local currencies
depending on short-term requirements of the business. Whilst there is a strong correlation between many mining input costs and the US
dollar, a significant portion of the mining business’ operating costs are denominated in local currencies, particularly the Kazakhstan tenge.
Rates of exchange for these currencies relative to the US dollar could fluctuate significantly and may materially impact the profitability
of the underlying operations and the net assets of the Group.
The Group generally does not enter into hedging positions in respect of its exposure to foreign currency risk. From time to time,
acquisitions and capital investments may expose the Group to movements in other currencies and the Group will consider hedging
such exposures on a case by case basis.
144
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xx Lorem ipsum
xx Lorem ipsum
During 2013, to protect the Group from currency risks arising on the CDB Aktogay CNY denominated debt, the Group has entered into
a CNY/USD cross currency swap. This derivative instrument provides a hedge against any movement in the CNY exchange rate against
the US dollar and also swaps the interest basis from a CNY interest rate into a USD LIBOR interest basis.
(i) Foreign currency exposure by company profile
The analysis in the table below of the net monetary assets and liabilities (including intercompany amounts) indicates the Group’s
exposure to currencies other than the functional currency of a company. These exposures represent the transactional exposures that
may give rise to net currency gains and losses recognised in the income statement. As at 31 December 2013 and 2012 these exposures
were as follows:
$ million
US dollar UK sterling
2013
Company
Kazakhmys LLC
Other trading companies
Non-trading or holding companies
n/a
386
(369)
105
122
$ million
US dollar
2012
Company
Kazakhmys LLC
Other trading companies
Non-trading or holding companies
n/a
186
(190)
88
84
(2)
–
–
6
4
UK sterling
(3)
–
–
2
(1)
Euro
–
(4)
–
8
4
KZT
Other
–
n/a
n/a
1,272
1,272
Euro
KZT
–
(22)
–
24
2
–
n/a
n/a
798
798
–
(1)
(2)
(57)
(60)
Other
–
6
(1)
–
5
(ii) Foreign currency exposure by balance sheet account profile
The Group’s exposure to foreign currency risk based on gross amounts is shown below:
$ million
2013
Current investments
Provisions for cash payments
Borrowings
$ million
449
50
68
(34)
(268)
(143)
122
US dollar
271
38
50
(38)
(187)
(50)
84
–
–
6
–
–
(2)
4
UK sterling
–
–
2
–
–
(3)
(1)
Euro
(1)
–
9
–
–
(4)
4
Euro
1
–
24
–
–
(23)
2
KZT
1,269
–
6
–
–
(3)
1,272
KZT
1,581
–
10
–
(736)
(57)
798
Other
–
–
3
–
(57)
(6)
(60)
Total
1,717
50
92
(34)
(325)
(158)
1,342
Other
1
–
7
–
–
(3)
5
Total
1,854
38
93
(38)
(923)
(136)
888
(iii) Foreign currency sensitivity analysis
In accordance with IFRS 7, the impact of foreign currencies has been determined based on the balances of financial assets and liabilities
at 31 December 2013. This sensitivity does not represent the income statement impact that would be expected from a movement in
exchange rates over the course of a period of time. In addition, the analysis assumes that all other variables remain constant. A 10%
strengthening of the US dollar against the following currencies at 31 December would have increased equity and profit after tax by
the amounts shown below. This analysis assumes that all other variables, in particular interest rates, remain constant. The analysis is
performed on the same basis for 2012:
$ million
KZT
Euro
UK sterling
RMB
2012
Current investments
Borrowings
US dollar UK sterling
Impact on profit
2013
2012
(126)
–
–
–
www.kazakhmys.com
(80)
–
–
–
145
4
36. Financial risk management continued
A 10% weakening of the US dollar against the above currencies at 31 December would have had an equal but opposite effect on the
above currencies to the amounts shown above, on the basis that all other variables remain constant.
(d) Commodity price risk
The Group’s mining revenues and earnings are directly impacted by fluctuations in the prices of the commodities it produces. The
Group’s principal commodities (copper, zinc, gold and silver) are priced via reference to global metal exchanges, upon which pricing is
derived from global demand and supply and influenced by macroeconomic considerations and financial investment cash flows. The pricing
of the Group’s principal commodities may also include a pre-determined margin or discount depending on the terms of sales contracts.
Commodity prices, particularly those derived from global metal exchanges, may fluctuate significantly and may have a material impact
on the Group’s financial results.
Management closely monitors the impact of fluctuations in commodity prices on the business and uses conservative pricing assumptions
and sensitivity analysis for its forecasting and investment appraisals.
The Power business positions the Group as a net generator in the Kazakhstan power market. The Kazakh power market has
a predominance of large industrial electricity users focused on the natural resource sector, and consequently, electricity demand tends
to broadly follow the commodity cycle. The Group sells its power to a mix of wholesale and industrial customers through directly
negotiated bilateral contracts. In April 2009, to encourage investment in the power sector, the Government introduced a framework
to raise tariff ceilings for domestic electricity sales for the years 2009 to 2015. The ceiling prices will be set by the Ministry of Industry
and New Technologies on an annual basis, and are subject to the generator meeting capital investment commitments.
In accordance with IFRS 7, the impact of commodity prices has been determined based on the balances of financial assets and liabilities
at 31 December 2013. This sensitivity does not represent the income statement impact that would be expected from a movement in
commodity prices over the course of a period of time. In addition, the analysis assumes that all other variables remain constant. A 10%
increase/(decrease) in commodity prices after the period end would have no impact on (loss)/profit after tax (2012: $nil). This analysis
assumes that all other variables, in particular costs, remain constant and was performed on the same basis as 2012.
(e) Interest rate risk
The Group has financial assets and liabilities which are exposed to changes in market interest rates. Changes in interest rates primarily
impact borrowings by changing their future cash flows (floating rate debt) or their fair value (fixed rate debt) and deposits. The Group’s
interest rate management policy is generally to borrow and invest at floating rates of interest. In some circumstances, an element of fixed
rate funding may be considered appropriate. A limited amount of fixed rate hedging using interest rate swaps may be undertaken during
periods where the Group’s exposure to movements in short-term interest rates is more significant, or in periods when interest rates are
perceived to be below long-term historical levels. The Group had no outstanding interest rate swaps as at 31 December 2013 and 2012.
At 31 December 2013 and 2012 all borrowings were at floating rates. The exposure of the Group’s financial assets and liabilities
to interest rate risk is as follows:
$ million
Financial assets
Non-current investments
Current investments
Total financial assets
Financial liabilities
Borrowings
Trade and other payables1
Total financial liabilities
146
At 31 December 2013
Noninterest
bearing
Total
Floating rate
Fixed rate
–
–
–
494
494
9
–
625
1,155
1,789
19
235
–
66
320
28
235
625
1,715
2,603
–
3,111
–
3,111
36
–
–
36
–
–
522
522
36
3,111
522
3,669
xx Lorem ipsum
xx Lorem ipsum
xx Lorem ipsum
xx Lorem ipsum
$ million
Financial assets
Current investments
Borrowings
1
Floating rate
At 31 December 2012
Non-interest
Fixed rate
bearing
Total
–
–
–
461
461
9
–
515
715
1,239
16
122
–
70
208
25
122
515
1,246
1,908
–
2,468
–
2,468
40
–
–
40
–
–
463
463
40
2,468
463
2,971
Trade and other payables exclude payments received in advance, other taxes payable and mineral extraction tax payable that are not regarded as financial instruments.
The interest charged on floating rate financial liabilities is based on the relevant benchmark rate (such as LIBOR). Interest on financial
instruments classified as fixed rate is fixed until the maturity of the instrument.
In accordance with IFRS 7, the impact of interest rates has been determined based on the balances of financial assets and liabilities at
31 December 2013. This sensitivity does not represent the income statement impact that would be expected from a movement in
interest rates or outstanding borrowings over the course of a period of time. In addition, the analysis assumes that all other variables
remain constant. The effect on profit after tax of a 1% movement in US$ LIBOR rates, based on the year-end net debt position and
with all other variables held constant, is estimated to be $20 million (2012: $15 million).
(f) Credit risk
Exposure to credit risk arises as a result of transactions in the Group’s ordinary course of business and is applicable to all financial assets
and commitments due from third parties. The Group has adopted policies and procedures to control and monitor the distribution of
these exposures to minimise the risk of loss in the event of non-performance by counterparties. The maximum exposure with respect
to credit risk is represented by the carrying amount of each financial asset on the balance sheet.
Credit risk relating to trade receivables
Given the number and geographical spread of the Group’s ultimate customers and the solvency of major trade debtors, credit risk
is believed to be limited in respect of trade receivables. The Group regularly monitors its exposure to bad debts in order to minimise
this exposure.
Customer credit risk is managed by each division but is subject to Group oversight to ensure that each division’s customer credit risk
management system operates in a prudent and responsible manner. Credit evaluations are performed for all major customers and credit
limits are established based on internal or external rating criteria. The credit quality of the Group’s significant customers is monitored
on an ongoing basis, and receivables that are neither past due nor impaired are considered of good credit quality.
Letters of credit are obtained where customer credit quality is not considered strong enough for open credit.
There were no material impairments of trade receivables during the year ended 31 December 2013 or 2012. The solvency of the
debtor and their ability to repay the receivables were considered in assessing the impairment of such assets.
Within Kazakhmys Mining, cash is received prior to delivery and transfer of title of the goods for sales to European customers. Sales
to Chinese customers are made under letters of credit which are obtained prior to delivery and transfer of title of the goods.
Kazakhmys Mining also provides certain social services to municipal authorities in the communities in which it operates as part of its
contractual obligations under its subsoil licences. For most receivable balances due from municipal authorities, full provision is recognised
in light of past payment history.
Kazakhmys Power receives cash upfront or has short payment terms depending on the nature of the customer.
Payment from European and Chinese customers is subject to provisional pricing and then final pricing adjustments. Kazakhmys Mining is
therefore exposed to the residual final pricing adjustment for each sales transaction although such amounts are not considered material
in the context of the Group’s overall revenues.
As at 31 December 2013, 10 (2012: 10) customers accounted for 87% (2012: 56%) of the trade and other receivables balance of
Kazakhmys Mining. By 24 February 2014, 100% (20 March 2013: 99.85%) of year-end balances due from these customers had been
received in full.
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147
(i) Risk for trade receivables by geographical regions
The maximum exposure to credit risk for trade receivables at 31 December by geographic areas was:
$ million
2013
2012
Europe
China
Kazakhstan
Other
8
150
63
14
235
8
68
43
3
122
Gross
2012
Impairment
(ii) Impairment losses
The ageing of trade receivables at 31 December was:
$ million
Not past due
Past due 0-90 days
Past due 91-180 days
Past due 181-270 days
More than 270 days
Gross
228
6
2
4
47
287
2013
Impairment
–
–
(1)
(4)
(47)
(52)
109
7
4
8
50
178
–
–
–
(6)
(50)
(56)
$ million
2013
2012
At 1 January
Charged to income statement
Written off
At 31 December
56
12
(16)
52
The movement in the provision for impairment in respect of trade receivables during the year was as follows:
52
4
–
56
Credit risk related to financial instruments and cash deposits
Credit risk relating to the Group’s other financial assets, comprising principally cash and cash equivalents, current investments and
derivative financial instruments arise from the potential default of counterparties. Credit risk arising from balances with banks and
financial institutions is managed by the Group’s Treasury Committee in accordance with a Board approved Treasury Policy. The Group’s
cash management policies emphasise security and liquidity ahead of investment return. Investment of cash and deposits are made only
with approved counterparties of high credit worthiness and within credit limits assigned to each counterparty. Exposures are measured
against maximum credit limits assigned to each approved counterparty to ensure credit risk is effectively managed. The limits are set
to minimise the concentration of risks and therefore mitigate any financial loss through potential counterparty failure.
In order to manage counterparty and liquidity risk, surplus funds within the Group are held predominantly in the UK and funds
remaining in Kazakhstan are utilised mainly for working capital purposes. The Group must maintain a level of cash and deposits in
Kazakhstan with local branches of international financial institutions and well established local Kazakhstan banks. The surplus funds
in the UK are held primarily with major European and US financial institutions with minimum ratings of Standard & Poor’s ‘A-’ and
Moody’s ‘A3’ and ‘AAA’ rated liquidity funds. These limits are reviewed on a regular basis to take account of developments in financial
markets and updated accordingly.
No material exposure is considered to exist by virtue of the possible non-performance of the counterparties to derivative
financial instruments.
The carrying amount of financial assets represents the maximum credit exposure. The maximum exposure to credit risk at
31 December was:
$ million
Current investments
2013
2012
28
235
625
1,715
2,603
25
122
515
1,246
1,908
(g) Liquidity risk
The Group’s objective is to maintain a balance between availability of funding and maximising investment return on its liquid resources
through the use of liquid cash investments and debt facilities of varying maturities. Management regularly reviews the funding
requirements of the Group in selecting appropriate maturities for its liquid cash investments.
The Group maintains back-up liquidity for debt maturing within 12 months by way of committed revolving credit facilities totalling
$100 million and by maintaining cash on the balance sheet (see note 30).
The Group’s policy is to centralise debt and surplus cash balances to the maximum extent possible.
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Maturity of financial assets and liabilities
The table below analyses the Group’s financial assets and liabilities, which will be settled on a gross basis, into relevant maturity groups
based on the remaining period at the balance sheet date to the contractual maturity date. The amounts disclosed in the table are the
contractual undiscounted cash flows.
$ million
2013
Provisions for cash payments1
Borrowings2
Current investments
$ million
2012
Provisions for cash payments1
Borrowings2
Current investments
On demand
–
–
–
–
–
–
–
590
590
590
On demand
–
–
–
–
–
–
–
139
139
139
Less than
3 months
(1)
(449)
(522)
(972)
–
235
–
1,125
1,360
388
Less than
3 months
(1)
(33)
(463)
(497)
–
122
–
1,107
1,229
732
3 to 12
months
(4)
(190)
–
(194)
–
–
625
–
625
431
3 to 12
months
(4)
(204)
–
(208)
–
–
515
–
515
307
1 to 5
years
(23)
(1,743)
–
(1,766)
19
–
–
–
19
(1,747)
1 to 5
years
(32)
(1,159)
–
(1,191)
16
–
–
–
16
(1,175)
More than
5 years
(21)
(1,640)
–
(1,661)
9
–
–
–
9
(1,652)
Total
(49)
(4,022)
(522)
(4,593)
28
235
625
1,715
2,603
(1,990)
More than
5 years
(26)
(2,019)
–
(2,045)
9
–
–
–
9
(2,036)
Total
(63)
(3,415)
(463)
(3,941)
25
122
515
1,246
1,908
(2,033)
1
Provisions for cash payments are presented on an undiscounted gross basis.
2
Borrowings include expected future interest payments based on contracted margins and prevailing LIBOR rates at the balance sheet date.
3
(h) Fair value of financial assets and liabilities
Set out below is a comparison by class of the carrying amounts and fair value of the Group’s financial instruments that are carried in the
financial statements.
2013
$ million
1
28
235
625
1,715
(36)
(3,111)
(522)
(1,066)
Fair value
28
235
625
1,715
(36)
(3,133)
(522)
(1,088)
2012
Carrying
value
25
122
515
1,246
(40)
(2,468)
(463)
(1,063)
Fair value
25
122
515
1,246
(40)
(2,456)
(463)
(1,051)
Current investments
Borrowings
Carrying
value
The fair value of the financial assets and liabilities are included at the amount at which the instrument could be exchanged in a current
transaction between willing parties, other than in a forced or liquidation sale. The following methods and assumptions were used to
estimate the fair values:
•
•
•
cash and cash equivalents, current investments, trade and other receivables, trade and other payables and dividends payable
approximate to their carrying amounts largely due to the short-term maturities of these instruments;
provisions for cash payments are discounted back to their present value; and
the fair value of borrowings is estimated by discounting future cash flows using rates currently available for debt of similar maturities.
www.kazakhmys.com
149
4
(i) Capital management
The over-riding objectives of the Group’s capital management policy are to safeguard and support the business as a going concern
through the commodity cycle, to maximise returns to shareholders (either through dividends or share buy-backs) and benefits to other
stakeholders and to maintain an optimal capital structure in order to reduce the Group’s cost of capital.
At 31 December 2013, total capital employed (which comprises equity holders’ funds, non-controlling interests and borrowings) of the
Group amounted to $7,332 million, compared to $8,733 million at 31 December 2012. Total capital employed is the measure of capital
that is used by the Directors in managing capital.
At 31 December 2013, the Group is in a net debt position from continuing operations of $771 million (2012: $707 million).
The Group does not have a target debt/equity ratio, but has determined a maximum debt capacity based on a ratio of long-term
‘normalised’ EBITDA which the Board believes establishes a sustainable level of gearing through the commodity cycle. This ratio is
reviewed in conjunction with market conditions and prevailing commodity prices in order to ensure an efficient capital structure that
is balanced against the risks of carrying excessive leverage. The Group manages net debt to ensure that it does not exceed two times
‘normalised’ EBITDA through the commodity cycle, where ‘normalised’ EBITDA excludes special items. Included within the debt facilities
are financial covenants related to maximum borrowing levels of the Group (determined by reference to net debt to EBITDA and debt
to equity ratios), minimum tangible net worth of individual Group entities and consolidated gross assets to gross liabilities ratios, for
which compliance certificates are produced. All financial covenants were fully complied with during the year and up to the date
of approval of the financial statements. There are no covenants under negotiation at present.
37. Commitments and contingencies
(a) Legal claims
In the ordinary course of business, the Group is subject to legal actions and complaints. The Directors believe that the ultimate liability,
if any, arising from such actions or complaints will not have a materially adverse effect on the financial condition or results of operations
of the Group. As of 31 December 2013 and 2012, the Group was not involved in any significant legal proceedings, including arbitration,
which may crystallise a financial loss for the Group.
(b) Kazakhstan taxation contingencies
(i) Inherent uncertainties in interpreting tax legislation
The Group is subject to uncertainties relating to the determination of its tax liabilities. Kazakhstan tax legislation and practice are in a state
of continuous development and, therefore, are subject to varying interpretations and changes which may be applied retrospectively. The
Directors’ interpretation of tax legislation as applied to the transactions and activities of the Group may not coincide with that of the tax
authorities. As a result, the tax authorities may challenge transactions and the Group may be assessed with additional taxes, penalties and
fines which could have a material adverse effect on the Group’s financial performance or position.
(ii) Kazakhmys Mining – tax audits
During 2010 and 2011, a tax audit for the years 2006 to 2008 was undertaken at Kazakhmys LLC whose scope included corporate
income tax, environmental taxes and other taxes charged to the income statement. The tax audit was completed and a final assessment
issued in October 2011, which resulted in a claim against Kazakhmys LLC in excess of the amounts previously paid. The Directors have
recognised a provision for the amounts that represent the Directors’ best estimate of the probable cash payments that will be required
to settle these claims. The risk exists that the ultimate settlement will exceed the Directors’ estimation. The tax computations for the
years ended 31 December 2009, 2010 and 2011 remain open for inspection during a future tax audit. Consequently, the tax figures
recorded in the financial statements for these years may be subject to change.
(iii) Kazakhmys Mining – transfer pricing
In June 2010, amendments to Kazakhstan’s transfer pricing legislation were passed into law and were made largely retrospective from
1 January 2009. The new legislation clarified certain areas of interpretation, including the use of LME and LBMA prices as the basis of
market prices, quotation periods to be used for the sale and purchase of traded commodities and the acceptability of discounts with
reference to LME/LBMA prices when transacting in traded commodities. Notwithstanding these amendments, the Directors have
recognised a provision for the amounts that represent the Directors’ best estimate of the probable cash payments that will be required
to settle any residual transfer pricing exposures based on the Directors’ interpretation of the new transfer pricing legislation (including
the impact of the amendments passed into law in June 2010) and the prevailing status of discussions with the tax authorities. The risk
remains that the tax authorities may take a different position with regards to the interpretation of the new transfer pricing legislation,
and amendments thereof, and the outcome of discussions with the Kazakhstan tax authorities may be materially different from the
Directors’ expectations.
(iv) Kazakhmys Mining – excess profits tax
In October 2011, the Supreme Court of Kazakhstan ruled in favour of Kazakhmys LLC in relation to past disputes over the
interpretation of the EPT legislation. As part of this ruling, the Supreme Court also found that Kazakhmys LLC should not have been an
EPT payer in the periods up to and including 2008. Kazakhmys LLC subsequently submitted a claim for $108 million to the Ministry of
Finance. By 31 December 2012, $60 million had been reimbursed by set-off against the 2012 tax year income tax and mineral extraction
tax liabilities and was recognised in the consolidated financial statements as a special item. The remaining $48 million of the $108 million
claim was challenged by the Ministry of Finance, who believe that this amount relates to periods beyond the Kazakhstan statute of
limitations, and was not reimbursed. As a result, notwithstanding the previous ruling of the Supreme Court and the merits of Kazakhmys
LLC’s case against the Ministry of Finance, in light of the ongoing legal actions being taken by Kazakhmys LLC against the tax authorities,
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the Directors believed that there was sufficient uncertainty over the recoverability of this amount such that an asset was not recognised
in the consolidated financial statements as at 31 December 2012.
In 2013, the Ministry of Finance continued its legal action over the remaining $48 million of the $108 million claim, with their appeal
reaching the Supreme Court. In October 2013, the Supreme Court ruled in favour of Kazakhmys LLC confirming Kazakhmys LLC’s
right to receive the remaining $48 million of the past EPT payments. In November 2013 the tax authorities lodged a formal appeal with
the Attorney General of Kazakhstan against the Supreme Court’s ruling. As the outcome and timing of any decision in respect of this
appeal and the recoverability of the $48 million remains sufficiently uncertain a credit has not been recognised for this amount in the
consolidated income statement for the year ended 31 December 2013.
(v) Period for additional tax assessments
The tax authorities in Kazakhstan are able to raise additional tax assessments for five years after the end of the relevant tax period in
respect of all taxes, except for excess profits tax. In respect of excess profits tax, they are able to raise additional tax assessments for
five years after the expiration of the terms of the relevant subsoil contract.
(vi) Possible additional tax liabilities
The Directors believe that the Group is in substantial compliance with the tax laws promulgated in Kazakhstan and any contractual terms
entered into that relate to tax which affect its operations and that, consequently, no additional material tax liabilities will arise. However,
due to the reasons set out above, the risk remains that the relevant tax authorities may take a differing position with regard to the
interpretation of contractual provisions or tax law.
The resulting effect of this matter is that additional tax liabilities may arise. However, due to the range of uncertainties described above
in assessing any potential additional tax liabilities, it is not practical for the Directors to estimate the financial effect in terms of the amount
of additional tax liabilities, if any, together with any associated penalties and charges for which the Group may be liable.
(c) Environmental contingencies
Environmental regulations in Kazakhstan are continually evolving and new emissions legislation is expected to be introduced in the near
future. The outcome of environmental regulations under proposal or any future environmental legislation cannot be reliably estimated
at present. As obligations are determined, they will be provided for in accordance with the Group’s accounting policies. The Directors
believe that there are no significant liabilities under current legislation not accrued for in the Group’s consolidated financial statements,
however recognise that the environmental regulators in Kazakhstan may take a differing position with regard to the interpretation of
environmental legislation. The resulting effect is that additional environmental liabilities may arise, however due to the range of
uncertainties, it is not practical for the Directors to estimate any further potential exposures.
The provision that has been made for costs associated with restoration and abandonment of mine sites upon depletion of deposits
(see note 32), is based upon the estimation of the Group’s specialists. Where events occur that change the level of estimated future
costs for these activities, the provision will be adjusted accordingly.
(d) Use of subsoil and exploration rights
In Kazakhstan, all subsoil reserves belong to the State, with the Ministry of Industry and New Technologies (the ‘Ministry’) granting
exploration and production rights to third party bodies. Subsoil and exploration rights are not granted in perpetuity, and any renewal
must be agreed before the expiration of the relevant contract or licence. These rights may be terminated by the Ministry if the Group
does not satisfy its contractual obligations. The current subsoil rights will expire at varying dates up to 2062.
(e) Capital expenditure commitments
The Group has capital expenditure commitments for the purchase of property, plant and equipment as well as commitments under its
mining subsoil agreements. Committed expenditure under the subsoil agreements typically relates to investments in community-related
projects, and includes investments in social sphere assets, infrastructure and public utilities. The total commitments in property, plant and
equipment as at 31 December 2013 amounted to $861 million (2012: $1,208 million).
$ million
Within one year
After one year but not more than five years
More than five years
2013
2012
5
18
48
71
4
17
40
61
(f) Operating lease commitments
The operating lease expense for the year was $4 million (2012: $4 million). At 31 December 2013 and 2012, the Group had the
following total commitments under non-cancellable operating leases:
4
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151
38. Related party disclosures
(a) Transactions with related parties
Transactions between the Company and its subsidiaries, which are related parties of the Company, have been eliminated on
consolidation and are not disclosed in this note. Details of transactions between the Group and other related parties are disclosed below.
The following table provides the total amount of transactions which have been entered into with related parties for the relevant
financial period:
$ million
Companies under trust management
2013
2012
Other
2013
2012
1
Sales to
related
parties
Purchases
from related
parties
Amounts
owed by
related
parties1
Amounts
owed to
related
parties
12
10
6
9
43
58
6
–
2
2
20
23
11
13
–
1
A provision of $46 million (2012: $56 million) is held set against the amounts owed by related parties. The bad debt reversal in relation to related parties was $10 million
for the year (2012: expense of $3 million).
(i) Government
Share ownership in the Company
On 24 July 2008, the Company issued 80,286,050 ordinary shares to the State Property and Privatisation Committee of the Government,
thereby making the Government a 15.0% shareholder of the Company and a related party with effect from this date.
On 4 October 2010, the Group’s Chairman, Vladimir Kim, sold 58,876,793 ordinary shares, approximately 11.0% of Kazakhmys’ shares in
issue, to Samruk-Kazyna. As a result of the transaction, the Government’s interest in the Group increased to 139,162,843 ordinary shares,
representing approximately 26.0% of the shares in issue. The Government’s interest is held via The State Property & Privatisation
Committee’s existing 15.0% holding and the 11.0% shareholding of Samruk-Kazyna.
Following the purchase of 11,701,830 of the Company’s shares under the share buy-back programme which completed in May 2012,
the Government’s percentage of the total voting rights held increased to 26.57% as at 31 December 2012.
On 19 June 2013, the Government transferred its entire shareholding to Eurasian Resources.
Eurasian Resources
Eurasian Resources held 139,162,843 ordinary shares in Kazakhmys PLC following a transfer from the Government of Kazakhstan on
19 June 2013. As part of the settlement of the consideration under the ENRC Takeover Offer on 8 November 2013 Kazakhmys PLC
received from Eurasian Resources 77,041,147 of its ordinary shares, which were subsequently cancelled.
China Development Bank (‘CDB’) and Samruk-Kazyna financing line
As explained in note 30, the Group secured a $2.7 billion financing line with Samruk-Kazyna, a wholly owned subsidiary of the
Government of Kazakhstan, and the CDB. The terms and conditions of the financing line, including a guarantee issued by the Group
over the debt obligations of Samruk-Kazyna to the CDB under the financing line, are considered to be on an arm’s length basis.
Other transactions
In the normal course of business, the Group conducts transactions with entities controlled by the Government. The principal activities
relate to the payment of electricity transmission fees, use of railway infrastructure and payments to tax authorities. In addition, the Group
also constructs or pays for the construction of community assets and projects which may be transferred to the relevant Government
department as part of the Group’s social programme in Kazakhstan. Transactions between the Group and Government departments and
agencies are considered to be related party transactions. Disclosure of these routine transactions is not made where all of the following
criteria are met:
•
•
•
they were done in the ordinary course of business of the Government department and/or company;
there is no choice of suppliers; and
they have terms and conditions (including prices, privileges, credit terms, regulations, etc.) that are consistently applied to all entities,
public or private.
The Group did not have any material or significant non-arm’s length or privileged transactions with entities controlled by the Government
(2012: $nil).
Dividend payment
The Government’s share of the dividend paid by the Company in 2013 was $11 million (2012: $32 million).
(ii) ENRC
In 2013, the Group received no dividends from ENRC (2012: $59 million).
(iii) Ekibastuz GRES-1
In 2013, the Group received no dividends from Ekibastuz GRES-1, the joint venture in which the Group has a 50% interest
(2012: $28 million).
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(iv) Companies under trust management agreements
The Group operates a number of companies under trust management agreements with local and state authorities. The activities include
heating distribution systems and road maintenance. The purpose of these agreements is to provide public and social services without any
material financial benefit for the Group.
(v) Other
Transactions with other companies primarily relate to the provision of goods and services, on an arm’s length basis, with companies
whose boards or shareholders include members of senior management from the Group’s subsidiaries.
(b) Terms and conditions of transactions with related parties
Prices for related party transactions are determined by the parties on an ongoing basis depending on the nature of the transaction.
39. Share-based payment plans
The Company’s share-based payment plans consist of a Long Term Incentive Plan (LTIP), an Executive Share Option Plan (ESOP)
and a Deferred Share Bonus Plan (DSBP). The total expense for the year ended 31 December 2013 arising from these plans was
$5 million (2012: $6 million). The total number of shares outstanding under these schemes as at 31 December 2013 was 2,567,348
(2012: 1,623,806). The total number of shares exercisable under these schemes as at 31 December 2013 was 168,966 (2012: 219,080).
These plans are discretionary benefits offered by the Company for the benefit of its employees. The main purpose is to increase the
interest of the employees in Kazakhmys’ long-term business goals and performance through share ownership. They represent incentives
for employees’ future performance and commitment to be aligned to the goals of the Group. The shares issued under these plans are
dilutive ordinary shares. For any future awards, the Company may issue new shares rather than purchase the shares in the open market
through the Employee Benefit Trust.
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153
40. Company financial statements
(a) Company balance sheet
$ million
Assets
Non-current assets
Investments
Deferred tax asset
Current assets
Prepayments and other current assets
Income taxes reclaimable
Intercompany loan
Total assets
Equity and liabilities
Equity
Share capital
Share premium
Capital reserves
Retained earnings
Total equity
Current liabilities
Intercompany payables
Total liabilities
Total equity and liabilities
These financial statements were approved by the Board of Directors on 26 February 2014.
Signed on behalf of the Board of Directors
Oleg Novachuk
Chief Executive Officer
Andrew Southam
Chief Financial Officer
154
Notes
40(e)
40(f)
40(g)
40(k)
29(a)
40(i)
40(j)
40(m)
2013
2012
6,483
1
6,484
6,480
1
6,481
3
–
323
13
–
339
6,823
2
1
646
14
1
664
7,145
171
2,650
798
3,098
6,717
200
2,650
771
3,449
7,070
7
99
106
6,823
4
71
75
7,145
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(b) Company statement of cash flows
$ million
Notes
Cash flows from operating activities
(Loss)/profit before taxation
Interest income
Share-based payments
Non-cash contribution to subsidiary for share-based payments
Dividends received
Operating cash flows before changes in working capital
Increase in prepayments and other current assets
Decrease in trade and other receivables
Increase/(decrease) in trade and other payables
Increase in intercompany payables
Cash flows from operations before interest, income taxes and dividends received
Income taxes paid
Dividends received
Net cash flows from operating activities
Cash flows from investing activities
Capital contributions into subsidiary undertakings
Net cash flows used in investing activities
39
40(e)
40(e)
Cash flows from financing activities
Amounts repaid under intercompany loans
Net cash flows used in financing activities
17
Net decrease in cash and cash equivalents
Cash and cash equivalents at the beginning of year
Cash and cash equivalents at the end of year
40(k)
40(k)
40(k)
2013
2012
(6)
(1)
3
–
(60)
(64)
(1)
12
3
28
(22)
(1)
60
37
51
(1)
6
(9)
(100)
(53)
–
23
(2)
71
39
(7)
100
132
–
–
(2)
(2)
(319)
323
(42)
(38)
(88)
79
(121)
(130)
(1)
1
–
–
1
1
(c) Company statement of changes in equity
$ million
Profit for the year
Other comprehensive income
Total comprehensive income for the year
Share-based payment
Employee share awards exercised
Dividends paid
At 31 December 2013
1
17
29(a)
17
Retained
earnings
Share
capital
Share
premium
Capital
reserves1
Total
equity
200
–
–
–
–
–
–
–
200
2,650
–
–
–
–
–
–
–
2,650
769
–
–
–
–
2
–
–
771
3,594
58
–
58
6
–
(88)
(121)
3,449
7,213
58
–
58
6
2
(88)
(121)
7,070
–
–
–
–
–
(29)
–
171
–
–
–
–
–
–
–
2,650
–
–
–
–
2
25
–
798
3
–
3
3
–
(315)
(42)
3,098
3
–
3
3
2
(319)
(42)
6,717
At 1 January 2012
Profit for the year
Other comprehensive income
Total comprehensive income for the year
Share-based payment
Employee share awards exercised
Own shares acquired under the share buy-back programme
Dividends paid
At 31 December 2012
Notes
Refer to note 40(i) for an analysis of ‘Capital reserves’.
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155
40. Company financial statements continued
(d) Company accounting policies
Basis of preparation
The Kazakhmys PLC Parent Company balance sheet, statement of cash flows and related notes have been prepared in accordance with
IFRSs as adopted by the EU as applied in accordance with the provisions of the Companies Act 2006. The financial information has been
prepared on a historical cost basis. The financial statements have been prepared on a going concern basis.
The functional currency of the Company and the presentational currency adopted is US dollars.
Principal accounting policies
The principal accounting policies are consistent with those applied in the consolidated financial statements (refer to notes 2 and 3) except
for the additional accounting policy relating to non-current investments set out below. There were no changes to the accounting policies
during the year.
The preparation of financial statements in conformity with IFRSs as adopted by the EU requires the use of estimates and assumptions
that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues
and expenses during the period. Although these estimates are based on management’s best knowledge of the amount, event or actions,
following implementation of these standards, actual results may differ from those estimates.
Non-current investments are held at cost. The Company assesses investments for impairment whenever events or changes in
circumstances indicate that the carrying value of an investment may not be recoverable. If any such indication of impairment exists, the
Company makes an estimate of its recoverable amount. Where the carrying amount of an investment exceeds its recoverable amount,
the investment is considered impaired and is written down to its recoverable amount.
(e) Company non-current investments
$ million
Cost
At 1 January
Additions
At 31 December
Provision for impairment
At 1 January
Charged to the income statement
At 31 December
Net book value
2013
2012
7,573
3
7,576
7,462
111
7,573
1,093
–
1,093
6,483
1,093
–
1,093
6,480
(i) Kazakhmys LLC
The Company’s investment in Kazakhmys LLC is held via an intermediate holding company.
During 2012, the Company issued 2,219 ordinary shares of 20 pence each and paid $2 million in consideration for the transfer of
7,160,730 units in Kazakhmys LLC from non-controlling shareholders. Following this transaction, the Company’s indirect interest held
in Kazakhmys LLC via an intermediate holding company increased from 99.88% at 1 January 2012 to 99.90% at 31 December 2012.
(ii) ENRC
The Company, via an intermediate holding company, held 334,824,860 shares in ENRC representing 26.0% of the issued share capital,
until its disposal on 8 November 2013.
(iii) Kazakhmys Services Limited
In 2013, an additional investment of $3 million (2012: $9 million) relating to capital contributions made by the Company to
Kazakhmys Services Limited was recognised in respect of the share awards issued by the Company on behalf of employees
of Kazakhmys Services Limited.
(iv) Kazakhmys Finance PLC
In 2012, the Company waived $100 million of the intercompany loan receivable due from Kazakhmys Finance PLC in order to provide
financial support to Kazakhmys Finance PLC as a capital contribution. As a result, $100 million was capitalised to the cost of the
Company’s investment in Kazakhmys Finance PLC.
(v) Other companies
The Company holds its interests in other subsidiaries in the Group either directly or via intermediate holding companies for those
businesses in Central Asia and Germany.
(f) Company intercompany loan
The intercompany loan receivable of $323 million due from Kazakhmys Finance PLC (2012: $646 million) has been advanced by the
Company for general corporate purposes. This balance is repayable on demand and accrues interest at US$ LIBOR minus 10 bps.
As at 31 December 2013, interest receivable of $3 million (2012: $3 million) had accrued on this loan balance and is included within
intercompany receivables (note 40(g)).
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(g) Company trade and other receivables
$ million
Intercompany receivables
Group tax relief receivables
2013
2012
3
10
13
3
11
14
Group tax relief is due from Kazakhmys Sales Limited of $10 million (2012: $11 million) as all UK Group companies are considered
part of a tax group for corporation tax purposes. The Company is in a loss-making position for tax purposes and therefore in a net
receivable position.
(i)
Company capital reserves
$ million
At 1 January 2012
Own shares issued upon exercise of options
At 31 December 2012
Own shares issued upon exercise of options
At 31 December 2013
1
Capital
reserve
Capital
redemption
reserve
Treasury
shares1
Total
779
–
779
–
–
779
6
–
6
–
25
31
(16)
2
(14)
2
–
(12)
769
2
771
2
25
798
During 2012, in accordance with the Company’s policy on treating shares purchased in the Company by the Employee Benefit Trust as own shares within equity, the
Company has created a new reserve for these shares. Consequently, the cost of these shares previously treated as a loan advanced to the Employee Benefit Trust has been
reclassified to the treasury shares reserve within equity.
(i) Capital reserve
The capital reserve is a non-distributable reserve created when the shares issued pursuant to the share exchange agreements prior to
the Company’s listing were recorded at fair value. To the extent the Company receives dividends from Kazakhmys LLC’s profits created
in the period prior to the share exchange, the capital reserve is realised through a transfer to distributable retained earnings.
(ii) Capital redemption reserve
As a result of the share buy-back programme undertaken in 2008 and the re-purchase of Kazakhmys PLC shares received from the
ENRC disposal in 2013, transfers were made from share capital to the capital redemption reserve based on the nominal value
of the shares cancelled.
(iii) Treasury shares
The treasury shares reserve represents the cost of the Company’s shares purchased by the Employee Benefit Trust to satisfy the share
options awarded under the Company’s share-based payment schemes.
(j)
Company trade and other payables
$ million
Salaries and related payables
Other payables and accrued expenses
2013
2012
2
5
7
3
1
4
(k) Company movement in net liquid funds
$ million
$ million
Borrowings
Net liquid funds
1
–
1
At
31 December
2013
Cash flow
(1)
–
(1)
–
–
–
At
1 January
2012
Cash flow
At
31 December
2012
1
–
1
–
–
–
1
–
1
Borrowings
Net liquid funds
At
1 January
2013
(l) Company financial risk management
The Company, as a holding company, has limited exposure to foreign exchange, credit and interest rate risks and these are shown below.
The Company has no exposure to commodity, liquidity or price risks.
4
www.kazakhmys.com
157
(i) Foreign exchange risk
The Company has transactional currency exposures principally arising from transactions relating to corporate costs which are
denominated in currencies other than the Company’s functional currency being the US dollar. Corporate costs are primarily
denominated in UK sterling. The Company generally does not enter into hedging positions in respect of its exposure to foreign
currency risk.
(ii) Credit risk
Credit risk for the Company relates to cash and cash equivalents. Balances within intercompany loans and trade and other receivables
mostly relate to amounts owed by Group undertakings resulting in reduced credit risk for these balances.
The carrying amount of financial assets represents the maximum credit exposure. The maximum exposure to credit risk
at 31 December was:
$ million
2013
2012
Intercompany loans
323
13
–
336
646
14
1
661
The exposure to credit risk for intercompany loans and trade and other receivables at 31 December 2013 and 2012 by geographic areas
was all European.
(iii) Interest rate risk
The Company has limited balances subject to interest rate risk. The exposure of the Company’s financial assets and liabilities to interest
rate risk is as follows:
$ million
Financial assets
Intercompany loans
$ million
Financial assets
Intercompany loans
At 31 December 2013
Noninterest
bearing
Total
Floating rate
Fixed rate
323
–
–
323
–
–
–
–
–
13
–
13
323
13
–
336
–
–
–
–
–
–
(7)
(99)
(106)
(7)
(99)
(106)
Floating rate
At 31 December 2012
Non-interest
Fixed rate
bearing
Total
646
–
1
647
–
–
–
–
–
14
–
14
646
14
1
661
–
–
–
–
–
–
(4)
(71)
(75)
(4)
(71)
(75)
All the Company’s interest bearing monetary assets are denominated in US dollars and have a maturity of less than one year.
158
xx Lorem ipsum
xx Lorem ipsum
xx Lorem ipsum
xx Lorem ipsum
(iv) Fair value of financial assets and liabilities
Set out below is a comparison by class of the carrying amounts and fair value of the Company’s financial instruments that are carried
in the financial statements:
2013
$ million
Intercompany loans
Carrying
value
323
13
–
(7)
(99)
230
Fair value
323
13
–
(7)
(99)
230
2012
Carrying
value
Fair value
646
14
1
(4)
(71)
586
646
14
1
(4)
(71)
586
The fair value of the financial assets and liabilities are included at the amount at which the instrument could be exchanged in a current
transaction between willing parties, other than in a forced or liquidation sale. Cash and cash equivalents, trade and other receivables,
trade and other payables and intercompany loans and payables approximate to their carrying amounts largely due to the short-term
maturities of these instruments.
(v) Capital management
The over-riding objectives of the Company’s capital management policy are to safeguard and support the business as a going concern
through the commodity cycle, to maximise returns to shareholders (either through dividends or share buy-backs) and benefits to other
stakeholders and to maintain an optimal capital structure in order to reduce the Company’s cost of capital (see note 36(i)).
(m) Company related party disclosures
(i) Transactions with related parties
Transactions with related parties comprise interest received from Kazakhmys Finance PLC of $1 million (2012: $1 million) and
management fees to Kazakhmys Services Limited for services provided on behalf of the Company during the year under a management
service agreement of $30 million (2012: $46 million).
The amounts outstanding from subsidiary companies are provided in notes 40(f) and 40(g).
The intercompany payables amount of $99 million is due to Kazakhmys Services Limited for management fees discussed above and other
services (2012: $71 million). The balance is payable on demand and is interest free.
As explained in note 40(e), in 2012 the Company waived its right to receive repayment of $100 million of the outstanding intercompany
loan receivable due from Kazakhmys Finance PLC.
The Company received $60 million dividends from Kazakhmys Sales Limited (2012: $100 million) during the year.
An additional investment of $3 million relating to capital contributions was made to Kazakhmys Services Limited during 2013
(2012: $9 million) (see note 40(e)).
The Government became a related party shareholder of the Company on 24 July 2008 and remained as such when on 19 June 2013 it
transferred its entire shareholding to Eurasian Resources. Following the completion of the Group’s disposal of the ENRC investment to
Eurasian Resources on 8 November 2013, the Government, a direct shareholder in Eurasian Resources, and Eurasian Resources are no
longer considered to be related parties of the Company or Group. Transactions involving the Government are explained in note 38.
(ii) Terms and conditions of transactions with related parties
Prices for related party transactions are determined by the parties on an ongoing basis depending on the nature of the transaction.
4
www.kazakhmys.com
159
(n) Subsidiaries
The consolidated financial statements include the financial statements of the Company and the principal subsidiaries listed in the
following table:
Equity
interest at
31 December
Country of
2013
incorporation
%
Equity
interest at
31 December
2012
%
Principal
activity
Operating
division
Copper mining
and concentrating
Kazakhmys Smelting LLC
Copper refining and smelting
Kazakhmys Aktogay LLP
Copper mine development
Kazakhmys Bozshakol LLP
Copper mine development
Kazakhmys Projects BV
Project development company
Kazakhmys Energy LLP
Kazakhmys Sales Limited
Sales and logistics
Dank LLP
Gold mining and processing
Andas Altyn LLP
Gold mining and processing
Copper/gold
Kazakhmys Gold Kyrgyzstan LLP
mine development
Kazakhmys Finance PLC
Group financing
Management and services
Kazakhmys Services Limited
company
Kazakhmys Investments Limited
Holding company
MKM Mansfelder Kupfer und
Copper fabrication
Messing GmbH2
Kazakhmys Mining
Kazakhstan
99.91
99.91
Kazakhmys Mining
Kazakhmys Mining
Kazakhmys Mining
Kazakhmys Mining
Kazakhmys Power
Kazakhmys Mining
Kazakhmys Mining
Kazakhmys Mining
Kazakhmys Mining
Kazakhstan
Kazakhstan
Kazakhstan
Kazakhstan
Kazakhstan
United Kingdom
Kazakhstan
Kazakhstan
Kyrgyzstan
100.01
100.01
100.01
100.01
100.01
100.0
100.01
100.01
100.01
100.01
100.01
100.01
100.01
100.01
100.0
100.01
100.01
100.01
N/A
N/A
United Kingdom
United Kingdom
100.0
100.0
100.0
100.0
N/A
MKM
United Kingdom
Germany
100.0
–
100.0
100.01
Kazakhmys Corporation LLC
1
Indirectly held by the Company.
2
Sold in May 2013 (see note 9(a)).
(o) Guarantees
The Company is the guarantor for the following:
•
•
•
•
•
as explained in note 30, the Company, together with Kazakhmys LLC and Kazakhmys Sales Limited, is a guarantor of the $1.0 billion
pre-export finance debt facility signed in December 2013;
as explained in note 30, the Company is the guarantor of the loan facilities signed between Kazakhmys Finance PLC and SamrukKazyna under the CDB/Samruk-Kazyna financing line. As at 31 December 2013, Kazakhmys Finance PLC had signed loan facilities
amounting to $2.7 billion which were fully drawn at that date;
as explained in note 30, the Company is also party to a several but not joint guarantee to the CDB under the loan facilities between
CDB and Samruk-Kazyna which is capped at $1.7 billion of principal plus 8.5% of any interest and other duly payable costs and
expenses. A right of set-off exists under the loan facilities between Samruk-Kazyna and Kazakhmys Finance PLC in the event
of any payment being made by the Company to the CDB under this guarantee;
as explained in note 30, the Company is a guarantor of the $1.5 billion finance facility for the Aktogay project signed in December
2011 with the CDB; and
the operating lease on the Company’s head office in London.
41. Events after the balance sheet date
(a) Shareholders vote on Ekibastuz GRES-1
On 7 January 2014, the Group’s shareholders approved the sale of the remaining 50% of the issued share capital of Ekibastuz GRES-1
and 100% of the issued share capital of Kaz Hydro to Samruk-Energo (see note 21).
(b) Repayment of $400 million under the CDB/Samruk-Kazyna financing facilities
On 9 January 2014, the Group repaid early $400 million of the CDB/Samruk-Kazyna financing facility relating to two mid-sized projects.
(c) Kazakhstan tenge (‘KZT’) devaluation
On 11 February 2014, the National Bank of Kazakhstan announced it would seek to support the tenge at around 185 KZT to the US
Dollar with the tenge quickly trading to this level, a 19% devaluation. Should this exchange rate be sustained, the Group’s operating costs
which have an underlying tenge exposure will reduce when reported in US Dollars, however the benefit is likely to be partially offset
by higher inflation, including the impact of a planned increase in salaries at Kazakhmys of up to 10%, with effect from 1 April 2014.
160
Consolidated five year summary
5
Results
Revenues1
(Loss)/profit before finance items and taxation1
(Loss)/profit before taxation1
(Loss)/profit after taxation1
(Loss)/profit for the year from discontinued operations
(Loss)/profit attributable to equity shareholders
Assets employed
Non-current assets
Current assets
Non-current liabilities
Current liabilities
Net assets
Financed by
Equity
Minority interests
Key statistics
Segmental EBITDA (excluding special items)
Underlying Profit
Free Cash Flow
EPS based on Underlying Profit ($)
Dividends per Share (US cents)
Net cash cost of copper after by-product credits excluding purchased
Maintenance spend per tonne of own copper cathode ($/t)
1
2013
2012
2011
2010
2009
3,099
(602)
(681)
(808)
(1,224)
(2,030)
3,353
242
151
65
(2,335)
(2,271)
3,563
1,125
1,057
836
94
930
3,237
1,099
1,032
(1,949)
621
1,450
2,404
549
805
544
9
554
4,032
4,587
(3,197)
(1,201)
4,221
6,699
3,294
(2,870)
(858)
6,265
8,355
3,376
(1,648)
(1,251)
8,832
8,095
2,900
(1,484)
(1,292)
8,219
6,408
3,555
(1,376)
(1,992)
6,595
4,217
4
4,221
6,259
6
6,265
8,825
7
8,832
8,206
13
8,219
6,582
13
6,595
873
1,149
190
(171)
(3.96)
0.37
–
1,364
1,912
492
85
(4.33)
0.94
11.0
1,959
2,925
1,498
824
1.75
2.80
28.0
1,932
2,835
1,489
718
2.71
2.79
22.0
1,211
1,634
602
579
1.04
1.13
–
222
1,435
174
2,065
114
1,237
89
1,075
72
644
From continuing operations only.
www.kazakhmys.com
161
Production and sales figures
1. Summary of significant production and sales figures
kt (unless otherwise stated)
Kazakhmys Mining
Ore mined1
Copper content in ore mined (%)
Copper cathode production:
From own concentrate
From purchased concentrate
Total copper cathodes produced
Total copper cathodes equivalent production2
Total copper cathodes equivalent sales
Zinc in concentrate production
Silver own production3 (koz)
Gold bar own production (koz)
Gold doré production (koz)
Kazakhmys Power
Electricity power generation sales4 (GWh)
1
Excludes output from the Bozymchak mine and from mines in the former Gold division: Central Mukur and Mizek.
2
Includes production of copper cathode equivalent of copper in concentrate sold and cathode converted into rod.
3
Includes production from mines in the former Gold division: Central Mukur and Mizek, and silver granules equivalent in copper concentrate sold.
4
Represents captive power stations.
162
2013
2012
39,191
0.99
37,507
0.95
263
2
265
296
312
134
14,348
103
5
292
2
294
294
282
152
12,643
116
13
5,723
5,562
2. Kazakhmys Mining
(a) Metal mining1
Zhezkazgan Region
North
South
Stepnoy
East
West
Annensky
Zhomart
Total Zhezkazgan
Region
Central Region
Konyrat
Shatyrkul
Sayak I and Sayak III
Abyz
Akbastau
Nurkazgan
Total Central
Region
East Region
Orlovsky
Irtyshsky
Nikolaevsky
YubileynoSnegirikhinsky
Artemyevsky
Total East Region2
Total Kazakhmys
Mining
2013
kt
Ore mined
2012
kt
2013
%
Copper
2012
%
2013
%
Zinc
2012
%
2013
g/t
Gold
2012
g/t
2013
g/t
Silver
2012
g/t
2,601
5,274
3,302
3,417
3,518
–
3,738
2,712
5,166
3,217
3,722
2,845
1,194
3,745
0.66
0.75
0.69
0.78
0.82
–
1.11
0.54
0.64
0.62
0.56
0.54
0.68
1.35
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
6.98
15.50
16.24
12.24
11.44
–
9.22
4.36
15.00
9.97
8.68
12.65
14.74
9.12
21,850
22,601
0.81
0.72
–
–
–
–
12.36
10.68
4,810
646
1,814
391
2,163
3,167
2,784
648
1,719
500
1,886
2,662
0.30
2.24
0.90
0.62
1.80
0.60
0.29
2.38
0.77
1.07
1.52
0.58
–
–
–
1.98
1.16
–
–
–
–
2.39
0.92
–
–
0.35
0.22
2.68
0.64
0.27
–
0.38
0.21
3.41
0.63
0.22
1.20
2.02
4.66
19.46
16.28
1.44
1.98
2.28
4.70
31.87
16.31
1.80
12,991
10,199
0.81
0.84
1.28
1.23
0.48
0.55
4.84
6.53
1,557
626
–
1,580
610
208
3.45
1.49
–
3.04
1.39
0.83
5.31
3.31
–
4.29
2.91
1.65
1.27
0.27
–
1.09
0.26
0.36
66.81
50.78
–
55.96
50.82
20.78
835
1,332
4,350
769
1,540
4,707
2.30
1.68
2.41
2.82
1.92
2.33
1.85
4.65
4.16
2.50
6.31
4.36
0.46
0.92
0.86
0.42
1.09
0.84
25.18
90.83
63.87
26.10
115.35
68.30
39,191
37,507
0.99
0.95
3.09
3.31
0.61
0.66
15.59
16.78
2013
kt
Coal mined
2012
kt
Waste stripped
2013
2012
kbcm
kbcm
2013
bcm:t
Strip ratio
2012
bcm:t
6,842
802
7,644
6,672
676
7,348
2.16
4.00
2.35
2.14
6.54
2.55
1
Totals only relate to producing mines.
2
Excluding Bozymchak mine.
(b) Coal mining
Molodezhny
Kusheki
Total Kazakhmys Mining
14,788
3,205
17,993
14,283
4,418
18,701
www.kazakhmys.com
163
Production and sales figures continued
2. Kazakhmys Mining continued
(c) Copper processing
Zhezkazgan Region
Zhezkazgan
Satpayev
Total Zhezkazgan Region
Central Region
Balkhash
Karagaily (Abyz)
Karagaily (Akbastau)
Nurkazgan (Akbastau)
Nurkazgan
Total Central Region
East Region
Orlovsky
Belousovsky
Irtyshsky
Nikolaevsky
Total East Region
Own copper concentrate processed by third party
Total Kazakhmys Mining (own concentrate)
Purchased concentrate
Total Kazakhmys Mining (own and purchased concentrate)
164
Copper concentrate
produced
2013
2012
kt
kt
2013
%
Copper in
concentrate
2012
%
398
38
436
355
77
432
34.4
21.9
33.3
33.7
23.5
31.9
268
33
235
8
80
624
252
52
183
18
70
575
15.2
3.7
10.4
17.4
18.7
13.3
16.5
5.8
9.8
16.7
18.6
13.6
261
61
39
75
436
26
1,522
3
1,525
235
71
37
95
438
21
1,466
5
1,471
18.2
16.5
18.8
19.4
18.2
28.3
20.7
52.6
20.7
18.1
16.5
18.5
21.5
18.6
27.2
20.7
47.3
20.7
(d) Zinc and precious metals processing
Zinc concentrate
produced
2013
2012
kt
kt
Zhezkazgan Region
Zhezkazgan
Satpayev
Total Zhezkazgan Region
Central Region
Balkhash
Karagaily
Nurkazgan
Total Central Region
East Region
Orlovsky
Belousovsky
Irtyshsky
Nikolayevsky
Artemyevsky (KazZinc)
Total East Region
Total Kazakhmys Mining (own
and purchased concentrate)
2013
%
Zinc in
concentrate
2012
%
2013
g/t
Silver1
2012
g/t
2013
g/t
Gold1
2012
g/t
–
–
–
–
–
–
–
–
–
–
–
–
563.6
430.7
552.0
535.9
468.6
524.4
–
–
–
–
–
–
–
1
–
1
–
7
–
7
–
40.8
–
40.8
–
41.4
–
41.4
74.2
67.6
38.7
66.3
84.7
79.5
53.4
77.8
2.7
3.0
6.3
3.5
3.0
5.0
5.6
5.1
132
11
28
68
47
286
112
18
22
134
38
324
46.6
43.5
47.6
44.8
51.2
46.02
45.7
40.1
47.5
44.5
51.4
44.92
175.0
78.2
632.0
550.4
1,708.13
267.22
163.4
92.2
593.2
752.0
1,442.93
316.42
2.0
1.8
2.7
6.0
10.13
2.72
1.7
1.1
2.8
6.3
9.33
2.72
287
331
46.9
45.6
291.5
301.2
3.1
3.6
1
Grade in grammes per tonne of copper concentrate.
2
Production only from own concentrators within East Region.
3
Includes gold and silver content in gravity concentrate toll processed by KazZinc from Artemyevsky ore.
www.kazakhmys.com
165
Production and sales figures continued
2. Kazakhmys Mining continued
(e) Copper cathodes production
Concentrate smelted
2013
2012
kt
kt
Zhezkazgan smelter
Own concentrate
Other1
Total Zhezkazgan smelter
Balkhash smelter
Own concentrate
Other1
Total Balkhash smelter
Total Kazakhmys Mining (excluding tolling)
Tolling
Total Kazakhmys Mining (including tolling)
1
Copper in concentrate
2013
2012
%
%
Copper cathodes
2013
2012
kt
kt
230
–
–
230
354
–
–
354
31.0
–
–
31.0
29.6
–
–
29.6
76
–
–
76
111
–
–
111
1,185
3
1
1,189
1,419
49
1,468
1,133
5
–
1,138
1,492
62
1,554
17.6
52.6
58.9
17.7
19.9
0.3
19.2
18.0
47.3
78.0
18.1
20.9
0.9
20.0
187
2
–
189
265
–
265
181
2
–
183
294
1
295
Includes materials (slag, scrap, etc.) and ore used directly in smelting process reprocessed at both the Zhezkazgan and Balkhash smelters.
(f) Copper rod and acid production
Total Kazakhmys Mining (Zhezkazgan smelter)
2013
kt
Copper rod
2012
kt
Acid production
2013
2012
kt
kt
12
24
1,066
1,053
(g) Precious metal production
Kazakhmys Mining1
Tolling
Total Kazakhmys Mining (including tolling)
1
2013
koz
Silver
2012
koz
2013
koz
Gold bar
2012
koz
2013
koz
Gold doré
2012
koz
14,348
–
14,348
12,643
112
12,755
103
11
114
116
18
134
5
–
5
13
–
13
Includes production from mines in the former Gold division: Central Mukur and Mizek.
(h) Other production
Enamel wire (t)
Lead dust (t)
(i)
2013
2012
1,026
10,849
1,268
9,065
Sales
Copper cathode
Copper rod
Copper in concentrate (cathode equivalent)
Total copper cathodes equivalent sales
Zinc metal in concentrate
Silver2 (koz)
Silver granule equivalent in copper concentrate sold (koz)
Gold bar (koz)
Gold doré (koz)
1
Kilotonnes (unless otherwise stated).
2
Sales of by-product include production from mines in the former Gold division: Central Mukur and Mizek.
166
kt1
2013
$ million
kt1
2012
$ million
270
11
31
312
137
12,115
1,391
105
4
1,973
85
210
2,268
143
287
24
146
6
259
23
–
282
151
13,206
–
180
13
2,088
187
–
2,275
154
414
–
300
22
(j)
Average realised prices
Copper ($/t)
Zinc concentrate ($/t)
Silver ($/oz)
Gold ($/oz)
2013
2012
7,252
1,049
23.1
1,390
8,067
1,022
31.3
1,667
2013
2012
13,492
12,785
5,862
6.44
15,164
14,368
7,184
6.01
6,599
5,723
2,466
5.10
6,441
5,562
3,838
4.19
3. Kazakhmys Power – production and sales
Ekibastuz GRES-1
Electricity power generation1 (GWh)
Net power generated1 (GWh)
Net power generated attributable to Kazakhmys2 (GWh)
Realised tariff prices (KZT/kWh)
Electricity power generation (GWh)
Net power generated (GWh)
Heating power (KGcal)
Realised tariff prices (KZT/kWh)
1
Presented on a 100% basis for 12 months.
2
Based on the Group’s 50% non-controlling interest in Ekibastuz GRES-1 until 5 December 2013 when the Group’s investment in Ekibastuz GRES-1 was classified as an asset
held for sale. Generation volumes after 5 December 2013 have not been attributed to Kazakhmys.
www.kazakhmys.com
167
Mining ore reserves and mineral resources
Ore reserves and mineral resources
estimation methods
Kazakhmys Mining
The Republic of Kazakhstan inherited the classification system and
estimation methods for minerals established by the Former Soviet
Union (FSU). Updated “Regulations for the Classification of Nonferrous Metals Reserves” became law in Kazakhstan in 2006. In
practice, this means that the statements of reserves and resources
developed by Kazakhmys and the mining plans to which they relate
must be submitted for approval to the corresponding committees
of the Ministry of Industry and New Technologies for which
adherence to the standardized national system of reserves and
resources estimation is mandatory.
Mineral deposits are classified according to their degree of geological
complexity into one of three deposit categories (for copper deposits),
which determine the density of exploration sampling and the
proportions and classifications of GKZ reserves that must be
estimated. As part of the exploitation licence for each mineral deposit,
a set of “Conditions for Estimation of Reserves” are prepared by a
Kazakhstan licenced design institute and submitted for approval by the
State. The Conditions for each deposit specify the minimum thickness
for exploitation of the ore body and cut-off grades, plus special
considerations which may apply where the conditions for mineral
extraction are exceptional or present difficulties.
Reserves and resources have traditionally been estimated by
Kazakhmys according to the FSU’s “Classification and Estimation
Methods for Reserves”. It is apparent that there is a growing trend
towards greater flexibility and discussion with state authorities with
respect to resource estimation methods. This has been reflected in
the increased use of computers and associated software by
Kazakhmys in maintaining records about reserves at the operating
mines and using databases linked to modelling software to assist in
exploration and preliminary resource estimation. IMC recognises
this as an important step to achieve verifiable and internally
consistent estimates.
IMC has reviewed the reserves statements of Kazakhmys and has
presented them in accordance with the criteria required to meet
JORC standards. “Guidelines on the Alignment of Russian minerals
reporting standards and the CRIRSCO Template” were published
during 2010 as a joint initiative of the Committee for Mineral
Reserves International Reporting Standards (CRIRSCO) and the
Russian Federal Government Agency State Commission on
Mineral Reserves. The guidelines have been used to align
categories of reserves (C2, C1, B and A) with appropriate Mineral
Resource categories (Measured, Indicated and Inferred). The role
of the JORC Competent Person, however, remains as being
responsible for any estimate that is reported.
Mineral Resources, by definition, must have reasonable prospects
for eventual economic extraction. In general, therefore, the total
active balance resource, where no unresolvable problems are
foreseen, is considered as the total Indicated and Measured
Mineral Resource at a mine.
At the mature Zhezkazgan mines, the amount of “commercial
reserves” (as defined in Kazakhstan) that have been fully
developed for extraction is equated to the Proved Ore Reserve
(inclusive of loss and dilution factors). The Measured Mineral
Resource which corresponds to the Proved Ore Reserve can be
derived, as can the Indicated Mineral Resource and Probable Ore
Reserve components.
Silver grades for the Zhezkazgan mines are stated for the total
Mineral Resource as the accuracy of the estimate is not as precise
as for copper. The silver grade value is considered to be
168
appropriate to an Indicated Resource level of confidence but is
applied to Measured Resource categories for the sake of
presenting average values for silver across the Company.
Kazakhmys have informed IMC that the mature mines in the
Zhezkazgan Region will continue to operate but are not expected
to generate positive economic returns under their current
operating structure. The reserves at these mines have therefore
been removed from the tabulation of the Company’s Ore
Reserves. A separate tabulation is however presented of “Non
JORC Compliant Ore Reserves” which shows the tonnage and
grade of minerals available for mining at these mines.
The by-product gold, silver and molybdenum grades for Bozshakol
are only considered to be estimated to an Inferred Resource level
of accuracy.
Generally, at Kazakhmys mines other than in Zhezkazgan, the active
balance reserve is divided into respective categories and the total of
C1 (plus A and B) categories are assigned to Measured Mineral
Resource and C2 category is assigned to Indicated Mineral Resource.
Conversion of Measured Mineral Resource to Proved Ore Reserve
and Indicated Mineral Resource to Probable Ore Reserve is made by
the application of appropriate modifying factors for loss and dilution.
Another important consideration is the level of planning and legal
approval for the exploitation of a particular reserve block. For
operating mines, Mineral Resources have been converted to Ore
Reserves where the reserve block can be exploited from existing
capital development (shafts, declines, haulages, open pit push-back
etc.), or where a feasibility study for the construction of new capital
development has been completed.
The assessment of Inferred Resources for Kazakhmys is
incomplete. The mines do not keep records of “prognosticated
reserves” (as defined in Kazakhstan), categories P1, P2 and P3,
which may include material that could be considered equivalent to
JORC category Inferred Resources. Some Inferred Resources are
shown in the tabulations where the competent person has
deemed that the degree of confidence in the estimate is
appropriate to that category.
The foregoing tabulations show new projects in addition to operating
mines. Projects, for the purpose of this report, were defined at the
outset by Kazakhmys and include greenfield sites and brownfield sites
near to existing mines. New projects require that feasibility studies
have been completed and that appropriate legal approvals have been
granted before reserves can be included in the statement. The JORC
Code now specifies that a Pre-feasibility Study is the minimum level
of engineering design required before a Mineral Resource can be
converted to an Ore Reserve.
These estimates form the basis for the process of presenting the
reserves in accordance with JORC compliant criteria. All reserves
quoted in the following tables are discounted for ore losses and
dilution and refer to estimates of tonnes and contained metal
grades at the point of delivery to the processing plant. Resources
are not discounted for losses and dilution and are inclusive of
reserves. All figures in reserves and resources are in dry metric
tonnes and are dated as at 31 December 2013.
Kazakhmys Mining gold mineral resources
Following international convention, gold resources reported in this
report are in situ estimates, while the reserves make due allowance
for mining recovery and dilution, based on recent operational
experience or assumptions made in feasibility studies. Ore
Reserves are contained within the Mineral Resources.
Kazakhmys Mining
Summary of ore reserves
Region
2013
Reserves1
kt
2012
Copper
%
2013 2012
2013
–
–
–
–
–
–
–
–
–
Gold
g/t
2012
2013
Silver
g/t
2012
2013
Lead
%
2012
– 8.91
– 27.91
– 19.28
8.35
19.94
14.37
–
–
–
–
–
–
Molybdenum
%
2013 2012
Zhomart
Proved
Probable
Total
39,329
47,216
86,545
43,887 1.05
47,400 1.27
91,287 1.17
Central Region
Proved
210,060
Probable 30,022
Total
240,082
312,574 0.88
28,616 1.63
341,190 0.97
0.71 0.09
1.66 0.27
0.79 0.11
0.07 0.28
0.29 0.91
0.09 0.36
0.22
0.79
0.27
2.66
7.46
3.26
2.23 0.01
7.02 0.02
2.64 0.01
East Region
Proved
Probable
Total
30,332
16,180
46,512
31,567 2.12
14,957 1.34
46,524 1.85
2.24 3.85
1.20 1.00
1.90 2.86
4.40 0.88
1.21 0.86
3.37 0.88
1.05 51.55
0.93 27.47
1.01 43.18
35.97 0.85
31.79 0.18
34.63 0.62
1.03
0.21
0.77
–
–
–
–
–
–
Total Kazakhmys Proved 279,721
Mining
Probable 93,418
Total
373,139
388,028 1.04
90,973 1.40
479,001 1.13
0.87 0.49
1.27 0.26
0.95 0.43
0.41 0.31
0.29 0.44
0.39 0.34
0.26 8.84
0.40 21.26
0.29 11.95
5.67 0.10
17.83 0.04
7.98 0.08
0.08 0.01
0.04
–
0.08 0.01
–
–
–
381,389 1.04
82,185 1.46
463,574 1.14
0.87 0.50
1.31 0.29
0.95 0.45
0.42 0.28
0.32 0.35
0.40 0.30
0.24 8.85
0.30 22.60
0.25 12.10
5.62 0.10
18.84 0.04
7.96 0.09
0.09 0.01
0.05
–
0.08 0.01
–
–
–
Analysed as:
Operating mines2
Development
project3
Proved
273,082
Probable 84,630
Total
357,712
Proved
Probable
Total
6,639
8,788
15,427
6,639 0.84
8,788 0.84
15,427 0.84
1.03
1.05
1.04
2013
Zinc
%
2012
0.84
0.84
0.84
–
–
–
1
Includes discounts for ore loss and dilution. Reserves = Resources – Ore Loss + Dilution.
2
Mine extensions are included within the original ore body as part of operating mines.
3
Development project relates to Bozymchak.
– 1.43
– 1.36
– 1.39
1.43
1.36
1.39
8.54
8.36
8.44
8.54
8.36
8.44
–
–
–
–
–
–
–
–
–
– 0.01
0.02 0.01
0.01 0.01
0.01
0.01
0.01
–
–
–
–
–
–
–
–
–
Non-JORC Compliant Ore
The mature mines in the Zhezkazgan Region will continue to operate but are not expected to generate positive economic returns
under their current operating structure. The reserves at these mines have therefore been removed from the tabulation of the
Company’s Ore Reserves and the prior year ore reserves have also been included in the table for comparison purposes. A separate
tabulation is presented below of “Non JORC Compliant Ore Reserves” which shows the tonnage and grade of minerals available for
mining at these mines, which has been excluded from the Ore Reserves.
Region
Proved
Probable
Total
82,013
157,496
239,509
Copper
%
2013 2012
93,814 0.61
164,485 0.61
258,299 0.61
2013
Zinc
%
2012
2013
–
–
–
–
–
–
–
–
–
0.59
0.64
0.63
2013
Silver2
g/t
2012
2013
Lead
%
2012
– 0.15
–
–
– 9.38
–
–
8.59
–
–
–
–
–
–
Gold
g/t
2012
1
Includes discounts for ore loss and dilution. Reserves = Resources – Ore Loss + Dilution.
2
Silver values for the Zhezkazgan Region are not available by blocks, only at the borehole level and have been averaged over each operation by
Kazakhmys LLC.
Molybdenum
%
2013 2012
–
–
–
www.kazakhmys.com
–
–
–
169
Zhezkazgan Region
2013
Reserves1
kt
2012
Mining ore reserves and mineral resources continued
Summary of mineral resources
Region
Zhezkazgan Region Measured
including Zhomart Indicated
Total
Inferred
2013
Resources1
Copper
kt
%
2012 2013 2012
297,151
327,755
624,906
–
298,887 1.08 1.11
302,935 1.02 1.04
601,822 1.05 1.08
–
–
–
Central Region
Measured 1,750,296
Indicated 2,816,059
Total
4,566,354
Inferred
830,412
East Region
Measured
Indicated
Total
Inferred
41,071
50,736
91,807
–
Total Kazakhmys Measured 2,088,518
Mining
Indicated 3,194,550
Total
5,283,067
Inferred
830,412
Analysed as:
Operating mines
Development
projects3
Measured
Indicated
Total
Inferred
486,797
289,056
775,853
–
Measured 1,601,721
Indicated 2,905,494
Total
4,507,214
Inferred
830,412
1,706,859
2,855,190
4,562,048
830,412
0.46
0.40
0.42
0.30
Zinc
%
2013 2012
–
–
–
–
–
–
–
–
Gold
g/t
2013 2012
–
–
–
–
0.46 0.02 0.04 0.09
0.40
–
– 0.07
0.42 0.01 0.02 0.08
0.30
–
– 0.09
2013
Silver2
Lead
g/t
%
2012 2013 2012
– 12.44 11.85
– 16.39 15.60
– 14.51 13.74
–
–
–
0.09
0.08
0.08
0.09
1.61
1.31
1.43
1.20
1.91
1.29
1.52
1.20
–
–
–
–
–
–
–
–
0.58
0.48
0.52
0.30
0.59 0.10 0.12 0.10 0.10
0.48 0.06 0.06 0.07 0.08
0.52 0.07 0.08 0.08 0.09
0.30
–
– 0.09 0.09
4.22
3.72
3.91
1.20
0.49
0.42
0.44
0.30
0.48 0.02 0.03 0.07 0.06
0.42 0.01 0.01 0.06 0.06
0.44 0.01 0.02 0.06 0.06
0.30
–
– 0.09 0.09
2.81
1.93
2.24
1.20
–
–
–
–
2.92
1.89
2.24
1.20
–
–
–
–
Resources include undiscounted reserves. No ore loss or dilution has been included.
2
Silver values for the Zhezkazgan Region are not available by blocks, only at the borehole level and have been averaged over each operation by Kazakhmys LLC.
3
Development projects relate to Aidarlay, Aktogay, Anissimov Kluch, Bozshakol, Karagaily, Kosmurun, Mizek underground, Nikolayevsky North, Nurkazgan East, Nurkazgan
North, Sayak IV, Taskora, Zhaisan, Zhilandy and Zhomart phase II.
–
–
–
–
–
–
–
–
– 0.02 0.01 0.01
–
– 0.01 0.01
– 0.01 0.01 0.01
–
– 0.01 0.01
1
170
–
–
–
–
4.51 0.02 0.03 0.01 0.01
3.49 0.01 0.02 0.01 0.01
3.89 0.02 0.02 0.01 0.01
1.20
–
– 0.01 0.01
519,496 0.91 0.93 0.35 0.40 0.18 0.21 8.86 9.20 0.07 0.08
321,134 1.06 0.98 0.54 0.47 0.18 0.27 21.63 17.92 0.14 0.16
840,630 0.96 0.95 0.42 0.43 0.18 0.24 13.62 12.53 0.10 0.11
–
–
–
–
–
–
–
–
–
–
–
1,527,690
2,888,976
4,416,665
830,412
–
–
–
–
– 0.02 0.01 0.01
–
– 0.01 0.01
– 0.01 0.01 0.01
–
– 0.01 0.01
41,440 2.27 2.34 4.09 4.42 0.89 0.97 53.97 53.77 0.89 0.99
51,985 1.53 1.44 3.28 3.39 0.85 0.84 56.72 57.72 0.85 1.06
93,425 1.86 1.84 3.64 3.85 0.87 0.90 55.49 55.97 0.87 1.03
–
–
–
–
–
–
–
–
–
–
–
2,047,186
3,210,110
5,257,295
830,412
Molybdenum
%
2013 2012
Kazakhmys Mining Gold Mineral Resources
Summary of mineral resources
Resources1
kt
2013
2012
Operating mines3
Measured
Indicated
Total
Inferred
Total Kazakhmys Mining Measured
Gold4
Indicated
Total
Inferred
2013
Gold
g/t
2012
2013
Silver
g/t
2012
2013
Copper
%
2012
Gold equivalent2
Moz
2013
2012
1,592
1,725
3,317
704
1,592
1,992
3,584
704
1.72
1.54
1.63
1.70
1.72
1.51
1.61
1.70
5.10
3.65
4.35
4.97
5.10
3.16
4.03
4.97
0.52
0.48
0.50
0.51
0.52
0.42
0.46
0.51
0.13
0.13
0.26
0.06
0.13
0.14
0.27
0.06
1,592
1,725
3,317
704
1,592
1,992
3,584
704
1.72
1.54
1.63
1.70
1.72
1.51
1.61
1.70
5.10
3.65
4.35
4.97
5.10
3.16
4.03
4.97
0.52
0.48
0.50
0.51
0.52
0.42
0.46
0.51
0.13
0.13
0.26
0.06
0.13
0.14
0.27
0.06
1
Resources include undiscounted reserves. No ore loss or dilution has been included.
2
Gold equivalent ounces have been calculated based on the following prices: copper $6,400 (2012: $6,000) per tonne, gold $1,300 (2012: $1,300) per ounce and silver
$22.00 (2012: $22.00) per ounce.
3
Operating mines consist of the Mizek and Mukur mines.
4
Bozymchak has been re-classified as a development project in Kazakhmys Mining for 2012 and 2013.
Coal reserves
Kazakhmys Mining4
Proved
Probable
Total
2013
Reserves1
MT
2012
2013
Ash ad2
kcal/kg
2012
346.2
–
346.2
352.4
–
352.4
–
–
44.7
–
–
45.2
1
Includes coal loss and increase in ash content.
2
ad – refers to air dried.
3
ncvar – refers to net calorific value as received.
4
Consists of the Molodezhny and Kusheki coal mines which are part of the Central Region.
CV ncvar3
g/t
2013
2012
–
–
3,679
–
–
3,679
2013
Sulphur
%
2012
–
–
0.5
–
–
0.5
www.kazakhmys.com
171
Mining ore reserves and mineral resources continued
Revision of ore reserves and mineral resources
statement to 31 December 2013
IMC Group Consulting Ltd (“IMC”) has undertaken a review of
the reserve and resource estimates prepared by Kazakhmys PLC
(Kazakhmys or the “Company”) as the basis for the preparation
of a statement of Ore Reserves and Mineral Resources as at
31 December 2013. Tabulations of Ore Reserves and Mineral
Resources, comparisons with the previous annual statement and
short technical descriptions, are provided for Kazakhmys’ copper,
coal and gold assets.
The annual review of Ore Reserves and Mineral Resources carried
out by IMC is predominantly focused each year on mine reserve
reports, depletion through production, analysis of company plans,
exploration and other changes affecting the Ore Reserves and
Mineral Resources.
The consideration of Mineral Resources is based on the JORC
definition which says that a Mineral Resource is an occurrence of
minerals in such form, quality and quantity that there are
reasonable prospects for eventual economic extraction. In
converting Mineral Resources to Ore Reserves in accordance with
the JORC Code, IMC considers a number of “Modifying Factors”
and the code definition that, “an Ore Reserve is the economically
mineable part of a Measured and/or Indicated Mineral Resource. It
includes diluting materials and allowances for losses, which may
occur when the material is mined. Appropriate assessments and
studies have been carried out, and include consideration of and
modification by realistically assumed mining, metallurgical,
economic, marketing, legal, environmental, social and governmental
factors. These assessments demonstrate at the time of reporting
that extraction could reasonably be justified.”
The term “economically mineable” has no fixed definition in the
JORC Code and short-term fluctuations in factors such as metal
prices or operating expenditure do not warrant the reclassification from Ore Reserves to Mineral Resources. If, however,
the changes are expected to be long term or permanent in nature,
then such re-classification is required.
IMC do not consider it necessary to visit every operation each year
for the purposes of verifying the requirements of the Modifying
Factors. A full due diligence of all the Company’s mining and
processing assets and development projects was conducted by
IMC in 2010 and the results of the study formed the basis of a
Competent Person’s Report (CPR) which was used by the
Company for their listing on the Hong Kong Stock Exchange in
2011. The observations and conclusions made by IMC in the CPR
are still considered to be largely relevant at the end of 2013 in the
case of mines where production and methods have been
consistent since 2010. Any discrepancies from the 2010
benchmark were accommodated during discussion with the
Company’s technical head office team based in Astana, Kazakhstan.
In October 2013, IMC visited some of the Kazakhmys operations
and development projects where significant changes had occurred
since the 2010 CPR study. The changes that occurred have now
been incorporated into this report.
172
The Statement of Ore Reserves and Mineral Resources is
presented in accordance with the criteria of the “Australasian
Code for Reporting Mineral Resources and Ore Reserves” (2012),
published by the Joint Ore Reserves Committee of the
Australasian Institute of Mining and Metallurgy and collaborating
institutions (the “JORC Code”). For the sake of clarity in this
report, reference to JORC category “Ore Reserve” and “Mineral
Resource” begin with a capital letter. The uncapitalised “reserve”
refers to the Kazakhstan use of the word which can, depending on
the context, be synonymous with both the JORC terms “Ore
Reserve” and “Mineral Resource”.
IMC is satisfied, from the audit undertaken, that the recently
revised estimates of reserves and resources prepared by the
Company are in accordance with the classification system required
by law in the Republic of Kazakhstan and that, correspondingly, the
estimates have a consistent basis for expressing the degree of
confidence for stating quantities of exploitable minerals at specific
grades of metal content. On the basis of the estimates supplied by
the Company, IMC has applied the same technical criteria as
utilised in the 2010 audit, for the preparation of the presentation
of ore reserves and mineral resources as at 31 December 2013,
in accordance with the reporting criteria of the JORC Code.
Guidelines for the alignment of Russian minerals reporting standards
and the JORC Code were published in 2010 and again these have
been applied in the preparation of the Kazakhmys Ore Reserve and
Mineral Resource Statement. This is considered appropriate as all the
mineral deposits currently being mined, or developed, by Kazakhmys
were explored during the Soviet era and reserves approved during
that era are still referenced. The aim of the guidelines is to provide a
standard reporting terminology for use in disclosure of the assets of
mining companies to stock markets.
Tim Horner
C.Geol C.Eng P.Geo (Ont)
Principal Geologist, IMC Group Consulting Ltd
4 February 2014
IMC Group Consulting Ltd
Innovate Office Building
Lake View Drive
Sherwood Park
Nottinghamshire NG15 0DT
United Kingdom
Electronic voting
The Annual General Meeting of the Company will be held
at 12.15pm on Thursday 8 May 2014 at The Lincoln Centre,
18 Lincoln’s Inn Fields, London WC2A 3ED, United Kingdom.
The Notice of Annual General Meeting and Form of Proxy are
enclosed with this Annual Report and Accounts. The Notice of
Annual General Meeting can also be found in the Investors &
Media section on the Kazakhmys website (www.kazakhmys.com).
Shareholders can submit proxies for the 2014 Annual General
Meeting electronically by logging on to www.investorcentre.co.uk/
eproxy. Electronic proxy appointments must be received by the
Company’s UK or Hong Kong registrar no later than 12.15pm
UK time (4.30pm Hong Kong time) on Tuesday 6 May 2014
(or not less than 48 hours before the time fixed for any
adjourned meeting).
Electronic shareholder communications
Website
Kazakhmys uses its website (www.kazakhmys.com) as its primary
means of communication with its shareholders provided that
the shareholder has agreed or is deemed to have agreed
that communications may be sent or supplied in that manner.
Electronic communications allow shareholders to access information
instantly as well as helping Kazakhmys reduce its costs and its
impact on the environment. Shareholders can sign up for electronic
communications via Computershare’s Investor Centre website at
www.investorcentre.co.uk. Shareholders that have consented or
are deemed to have consented to electronic communications can
revoke their consent at any time by contacting the Company’s
UK or Hong Kong registrar. In addition to enabling shareholders
to register to receive communications by email, Computershare’s
Investor Centre website provides a facility for shareholders to
manage their shareholding online by allowing them to:
A wide range of information on Kazakhmys is available at
www.kazakhmys.com including:
• view their share balance;
• change their address;
• view payment and tax information; and
• update payment instructions.
Computershare’s Investor Centre website also offers a share
dealing service for shareholders on the UK register.
Trading account
Shareholders on the Company’s UK register who are domiciled
in the EU can open a trading account by contacting the Company’s
UK registrar. This service allows shareholders to hold their shares
electronically rather than in certificated form. There are no set up
or administration fees and certificates can be deposited free of
charge (£35 per line of stock fee applies to transfers out).
Additional highlights include:
• ability to trade online or over the telephone;
• £20 fee per transaction (telephone commission 1%,
minimum £20);
• access to international markets;
• limit orders, allowing shareholders to place trade instructions
outside of London Stock Exchange opening hours.
The value of your investments may go down as well as up. You
may not get back all the funds that you invest. The potential for
profit or loss from transactions on international markets or in
foreign denominated currencies will be affected by fluctuations
in exchange rates.
• share price information – current trading details and
historical charts;
• shareholder information – dividend information, AGM results
and details of the Company’s UK and Hong Kong registrars; and
• press releases – current and historical.
Registrars
For information about proxy voting, dividends and to report
changes in personal details, shareholders should contact:
For shareholders holding their shares on the UK register:
Computershare Investor Services PLC
The Pavilions
Bridgwater Road
Bristol BS13 8AE
United Kingdom
Tel: +44 (0)870 707 1100
Fax: +44 (0)870 703 6101
Email: [email protected]
For shareholders holding their shares on the Hong Kong register:
Computershare Hong Kong Investor Services Limited
17M Floor
Hopewell Centre
183 Queen’s Road East
Wan Chai
Hong Kong
Tel: +852 2862 8555
Fax: +852 2865 0990
For shareholders holding their shares on the Kazakhstan
Stock Exchange:
• trade in or hold up to seven currencies; and
• financial information – annual and half-yearly reports
as well as production reports;
Shareholder Queries
Kazakhmys PLC
100 Victoria Street
London SW1E 5JL
United Kingdom
Tel: +44 (0)20 7901 7898
www.kazakhmys.com
173
Shareholder Information continued
Unsolicited telephone calls and correspondence
Shareholder interests at 31 December 2013
Shareholders are advised to be wary of any unsolicited advice,
offers to buy shares at a discount, or offers of free reports about
the Company. These are typically from overseas based ‘brokers’
who target US or UK shareholders, offering to sell them what
often turn out to be worthless or high risk shares. These operations
are commonly known as ‘boiler rooms’ and the ‘brokers’ can be
very persistent and extremely persuasive. If shareholders receive
any unsolicited investment advice, they can check if the person
or organisation is properly authorised by the Financial Conduct
Authority (FCA) at www.fca.org.uk/scams and the matter may be
reported to the FCA by e-mailing [email protected] or
by calling 0800 111 6768 (UK) or +44 20 7066 1000 (international).
Details of any share dealing facilities that the Company endorses
will be included in Company mailings or on our website.
Number of shareholders: 2,163
Currency option and dividend mandate
The Company declares dividends in US dollars. For those
shareholders who hold their shares on the UK register the default
currency for receipt of their dividends is US dollars, although
they can elect to receive their dividends in UK pounds sterling.
For those shareholders who wish to receive their dividend in UK
pounds sterling, they should contact the Company’s UK registrar
to request a currency election form. For those shareholders who
hold their shares on the Hong Kong register the default currency
for receipt of their dividends is Hong Kong dollars, although they
can elect to receive their dividends in US dollars. Shareholders on
the Hong Kong register of members can contact the Company’s
Hong Kong registrar to request a currency election form.
Shareholders on the UK register of members can arrange for
dividends to be paid directly into a UK bank or building society
account. To take advantage of this facility, you should contact the
Company’s UK registrar to request a dividend mandate form or
register online at www.investorcentre.co.uk. The arrangement is
only available in respect of dividends paid in UK pounds sterling.
Number of shares in issue: 458,379,033
By size of holding
No. of
accounts
% of total % of ordinary
accounts share capital
1,000 and under
1,001 to 5,000
5,001 to 10,000
10,001 to 100,000
Over 100,000
Total
1,192
444
133
215
179
2,163
55.11
20.53
6.15
9.94
8.27
100.00
By category of shareholder
No. of
accounts
% of total % of ordinary
accounts share capital
Private shareholders
Banks/nominees
Pension funds
Investment/unit trusts
Insurance companies
Corporate holders
Hong Kong Share Register
Share Plan Control Account
Treasury Account
Total
927
1,192
1
1
2
37
1
1
1
2,163
42.85
55.10
0.05
0.05
0.09
1.71
0.05
0.05
0.05
100.00
Q1 Interim Management Statement
Half-yearly results announced
Q3 Interim Management Statement
The half-yearly results, to be announced on the London Stock
Exchange, Hong Kong Stock Exchange and Kazakhstan Stock
Exchange in August 2014, will continue to be available on the
Company’s website in the form of a press release and not issued
to shareholders in hard copy. Shareholders that have signed up for
electronic shareholder communication will be sent a notification
when these are available on the website.
Company Secretary
Joint corporate brokers
Auditors
Robert Welch
Tel: +44 (0)20 7901 7800
Registered office
J.P. Morgan Cazenove Limited
25 Bank Street
Canary Wharf
London E14 5JP
United Kingdom
KPMG Audit Plc
15 Canada Square
Canary Wharf
London E14 5GL
United Kingdom
Kazakhmys PLC
100 Victoria Street
London SW1E 5JL
United Kingdom
Citigroup Global Markets Limited
33 Canada Square
Canary Wharf
London E14 5LB
United Kingdom
174
0.55
94.82
0.00
0.00
0.00
1.98
0.10
0.00
2.55
100.00
Events calendar
Half-yearly results
Tel: +44 (0)20 7901 7800
Registered number: 05180783
0.09
0.23
0.22
1.73
97.73
100.00
April 2014
8 May 2014
August 2014
October 2014
Glossary
bcm:t
Ekibastuz GRES-1
GWh
bank cubic metres excavated to recover
one metric tonne of coal
Ekibastuz GRES-1 LLP
ENRC or ENRC PLC
gigawatt-hour, one gigawatt-hour represents
one hour of electricity consumed at a constant
rate of one gigawatt
the Board of Directors of the Company
Eurasian Natural Resources
Corporation PLC
IAS
capital employed
EPS
the aggregate of equity attributable to owners
of the Company, non-controlling interests
and borrowings
earnings per share
Board or Board of Directors
International Accounting Standards
cash cost of copper after
by-product credits
Kazakhmys Mining cash operating costs
and a charge for processing costs which
are deducted from the sales price of copper
in concentrate excluding purchased
concentrate and mineral extraction tax less
by-product revenues, divided by the volume
of copper cathode equivalent sales
CDB
the China Development Bank Corporation
CIT
corporate income tax
CNY
International Accounting Standards Board
EPS based on Underlying Profit
profit for the year after adding back items
which are non-recurring or variable in nature
and which do not impact the underlying
trading performance of the business, and
their resulting taxation and non-controlling
interest impact, divided by the weighted
average number of ordinary shares in
issue during the period
EPT
IFRS
International Financial Reporting Standard
JORC
Joint Ore Reserves Committee
ESP
electrostatic precipitator
Kazakhmys Corporation LLC, the Group’s
principal operating subsidiary in Kazakhstan
EURIBOR
Kazakhmys Mining
European Inter Bank Offer Rate
an operating segment of the Group, which
comprises all entities and functions within
the Group responsible for the exploration,
evaluation, development, mining and
processing of the Group’s mineral resources
and sale of the Group’s metal products.
The operating segment excludes the
Group’s captive power stations, which
are included within the Kazakhmys Power
operating segment
CO2
Euro, the currency of certain member states
of the European Union
carbon dioxide
Free Cash Flow
all or any of the: Audit; Group Health, Safety
and Environment; Remuneration; or
Nomination Committees depending on the
context in which the reference is used
net cash flow from operating activities before
capital expenditure and non-current VAT
associated with expansionary and new
projects less sustaining capital expenditure
on tangible and intangible assets
Company or Kazakhmys
g/t
Kazakhmys PLC
grammes per metric tonne
CREST
Government
an electronic means of settling share
transactions and registering investors on a
company’s register of members
the Government of the Republic
of Kazakhstan
the Group
Kazakhmys PLC and its subsidiary companies
GHSE Committee
Group EBITDA
Kazakhmys Petroleum
an operating segment of the Group, until
its disposal on 23 December 2011, which
held a licence to conduct oil and gas
exploration and development activity
in the Eastern Akzhar exploration block
in western Kazakhstan
Kazakhmys Power
an operating segment of the Group, which
includes the Group’s captive power stations
and the Ekibastuz GRES-1 coal-fired power
plant joint venture, whose principal activity is
the sale of electricity to external customers
and internally to Kazakhmys Mining
Kazakhstan
dollar or $ or USD
earnings before interest, taxation, the
non-cash component of the disability
benefits obligation, depreciation, depletion,
amortisation and mineral extraction tax
adjusted for special items and including
the share of EBITDA of the joint venture
and associate
United States dollars, the currency of the
GW
km
kilometre
EBITDA
gigawatt, a unit of power equal to one
billion watts
Directors
the Directors of the Company
amortisation and mineral extraction tax
guidelines on the alignment of Russian
minerals reporting standards and the
CRIRSCO Template were published during
2010 as a joint initiative of the Committee for
Mineral Resources International Reporting
Standards (CRIRSCO) and the Russian
Federal Government Agency State
Commission on Mineral Reserves
International Financial Reporting
Interpretations Committee
Kazakhmys Corporation LLC
or Kazakhmys LLC
Euro or €
CRIRSCO guidelines
IFRIC
excess profits tax
Chinese yuan, basic unit of the renminbi
Committee or Committees
IASB
the Republic of Kazakhstan
kbcm
thousand bank cubic metres
KGcal
thousand gigacalories, units of heat energy
koz
thousand ounces
www.kazakhmys.com
175
Glossary continued
kt
MT
SO2
thousand metric tonnes
million metric tonnes
sulphur dioxide
KPI
MW
special items
key performance indicator
megawatt, a unit of power equivalent
to one million watts
kilowatt, a unit of power equal to one
thousand watts
National Bank
the National Bank of Kazakhstan
those items which are non-recurring or
variable in nature and which do not impact
the underlying trading performance of the
business. Special items are set out in
note 6 to the financial statements
kWh
net dependable capacity
SX-EW
kilowatt hour, one kilowatt hour represents
one hour of electricity consumed at a constant
rate of one kilowatt
maximum capacity sustained by a unit in
a specified period modified for seasonal
limitations and reduced by the capacity
required for the plant
solvent extraction and electrowinning,
a two-stage metallurgy process used for
the extraction of copper
kW
lb
pound, unit of weight
NOX
t
metric tonnes
nitrogen oxides
LBMA
London Bullion Market Association
ounce or oz
LIBOR
a troy ounce, which equates
to 31.1035 grammes
London Inter Bank Offer Rate
Listing
the listing of the Company’s ordinary
shares on the London Stock Exchange
on 12 October 2005
PXF
RMB
renminbi, the official currency of the People’s
Republic of China
$/t or $/tonne
US dollars per metric tonne
megalitre
thousand cubic metres
Samruk-Kazyna
MET
mineral extraction tax
Joint Stock Company “National Welfare Fund
“Samruk-Kazyna”, an entity owned and
controlled by the Government of Kazakhstan
MKM
Segmental EBITDA
MKM Mansfelder Kupfer und Messing GmbH,
the Group’s operating subsidiary in the Federal
Republic of Germany and an operating
segment of the Group, until its disposal on
28 May 2013, which manufactures copper
and copper alloy semi-finished products
amortisation and mineral extraction tax from
the Group’s operating segments, including
the share of EBITDA of the joint venture
but excluding the share of EBITDA of
the associate
Moz
million ounces
the official currency of the Republic
of Kazakhstan
UK
United Kingdom
pre-export finance debt facility
LME
London Metal Exchange
tenge or KZT
Underlying Profit
profit for the year after adding back
items which are non-recurring or variable
in nature and which do not impact the
underlying trading performance of the
business and their resultant tax and
non-controlling interest effects.
Underlying Profit is set out in note
16 to the financial statements
USc/lb
US cents per pound
Cautionary comment concerning forward-looking statements
This Annual Report and Accounts includes forward-looking statements with respect to the business, strategy and plans of Kazakhmys
and its current goals, assumptions and expectations relating to its future financial condition, performance and results.
By their nature, forward-looking statements involve known and unknown risks, assumptions, uncertainties and other factors which may
cause actual results, performance or achievements of Kazakhmys to be materially different from any future results, performance or
achievements expressed or implied by such forward-looking statements.
Shareholders are cautioned not to place undue reliance on the forward-looking statements. Except as required by the UK Listing Rules
and applicable law, Kazakhmys does not undertake any obligation to update or change any forward-looking statements to reflect events
occurring after the date of this Annual Report and Accounts.
176
For all the
latest information
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latest information on our operations,
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www.kazakhmys.com
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Further information on our
commitment to corporate
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www.kazakhmys.com/corporate_responsibility
m/corporate_responsibility
This report is printed utilising vegetable based inks on Heaven 42, which has been sourced from well
managed forests independently certified according to the rules of the Forest Stewardship Council®.
Designed and produced by Black Sun Plc Printed by Pureprint Group
Kazakhmys PLC
100 Victoria Street
London
SW1E 5JL
United Kingdom
Telephone +44 (0)20 7901 7800
Facsimile +44 (0)20 7901 7859
Website www.kazakhmys.com

on copper - KAZ Minerals

Transcription

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